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Thursday, April 30, 2009

Ilargi: I waited to see Obama's Chrysler speech at noon, I figured he'd have something to say. But halle-bleeping-lujah, what a lot of lukewarm hot air nonsense one man can put into a few minutes. I’m sorry, I know he looks like a decent man, but I’m running out of patience. Whatever happened to the promise of transparency?

In case you missed the speech, Chrysler will go through a 3-60 day bankruptcy, or so they hope and say, and Fiat will take over after that, with GMAC providing loans for who wants to buy a Chrysler automobile. The president suggested Americans should buy American cars. How about non-protectionism? How about the fact that Chrysler is evidently NOT an American company anymore?

In this phase of the game, hollow words simply don't do it for me anymore, I understand that for this administration all is like a product to be sold, most of all the president himself. And yes, they're doing a swell job of it. But when it comes to a topic like Chrysler, I want to know a number of things first and foremost, and so should you. Mind you, I'm just shooting from the hip here, I'm sure there''s other issues the president chooses not to address:

First of all: Why does the US government meddle in privately held businesses to begin with? In whose interest is this?

How much taxpayer money is put at risk? Not partial, no rosy best cases, but the total, and over time. What were the stress tests -if any-, what were their parameters, and what did they say? If the company goes belly-up anyway 2 or 5 years from now, what'll be the people's tab?

What are the market projections used in the models the deal will be based on? Obama talks about reviving the US car industry, but that doesn't mean much. Specify: how many million sales per year does that revival predict? 2 million, 5 million, 15 million? This question is crucial for all policies developed today that are -make that should be- designed to keep taxpayers safe going forward. The most pessimistic scenario I’ve seen is 9.5 million sales, and that's not going to happen. That is to say, unless Obama chooses to bury his voters even deeper in debt through state-guaranteed loans (see under 4). And even then 9.5 million will be out of reach, you'd have to give them away like Oprah does. Have the "experts" run a model for 3-4 million annual sales over the next 5 years? Let's see the rundown. It's the people's money that's put at risk, and they have the right to know why, how, when, where and how much.

How much money and other assets have been promised to FIAT? And I mean the whole enchilada, all of it, including of course -future- risks committed to by Washington.

What has been discussed with the Italian government? What guarantees have come from Berlusconi? What was said about Fiat's recent record losses?

What will be the structure of the financing deals designed to enable people to buy Chrysler cars?

Obama mentioned doing the lending through GMAC, but he did not say how. And GMAC, as we know, to put it mildly, is not exactly a picture of financial health.

My fear, which by now borders on near certitude, is that the car industry will be kept on state life support systems in the same way housing and mortgages are. That is to say, just like hardly any homes would be sold or refinanced today without full federal intervention and guarantees, in the form of Fannie and Freddie buying up all loans, no-one would be able to get a car loan without similar state involvement.

So, next up, and very soon, is GM, which is many times bigger than Chrysler. Are we going to see the same lack of transparency, the same lack of accountability? It looks inevitable. It's one thing to model your nation's future after Bulgaria, it's another to exclusively pick up the worst characteristics of that fine and tranquil country's saddening past. Yes, it is possible, as Bulgaria has shown, to maintain some sort of pretend society by spending everybody's present and future wealth to keep industry producing. It's also possible to sell the products to people who can't afford them by handing out widespread state subsidies. But it's a model that guarantees its own demise. And no, I'm talking about left vs right in a political sense, or those recent tea parties for the nation's simpletons. But a government needs to openly communicate with its citizens when it elects to spend their money. There is nothing of the kind happening. And that, more than anything, is what makes this a political crisis.

Yesterday's Dow rally was partly based on a 2.2% rise in consumer spending. Today, we find that the reality in March was a 2.4% annualized drop. And more catastrophic industry numbers were avoided only because so many people were fired from their jobs.

You know what's a good thing tho think about? The IMF says the US will lose $1.9 trillion of the funds it has injected into its economy. That's bad enough, but that is the super-rosy scenario. About $1.5 trillion of that number springs from the assumption that losses on loans and other provisions will be limited to 10%, and 90% will be recovered one way or another. Now, remember Elizabeth Warren? She calculated that in the TARP program, the government lost 34% of what it put in, right off the bat. The paper bought was simply not worth more, which means the 34% lost didn't even yet include any further future losses. If I were a betting man, I’d wager all I have that that sort of losses is the consistent pattern here. People can't afford to buy homes or cars on their own dollar right now. What is it that we are supposed to believe will happen to make that change?

This is what we know: The fractional-reserve-banking-enabled, Fiat-currency-assisted credit derivatives bubble that grew 10 times larger than Earth’s GDP has popped. And the collapse of this greatest global Ponzi scheme since the South Sea Bubble has taken world markets with it. It has destroyed pension funds and wiped out banks across the planet. Economies have screeched to a standstill. Trade has collapsed. Fifty million have lost their jobs. A hundred million have been pushed into hunger.

This is what we don’t know: when, or if, the banking bailouts, money printing and other wealth transfer schemes will stop. In America, the people are mad as hell and they aren’t going to take it anymore. Or that’s what you would think if you tuned in to any cable channel spewing the new populism. The Wall Street Journal is reporting, however, that all that televised “populism” is a whole lot of hot air: “Today’s populism has created no large scale protests in the US.”

In France, I see almost weekly small scale protests and monthly large scale ones since the global Ponzi scheme popped last year. No, the French aren’t taking this lying down:

That isn’t the case overseas. Close to one million French demonstrators on March 19 protested the government’s handling of the economic crisis, and thousands blocked London streets on April 1 during a G-20 meeting, events that dwarfed any protests in the U.S.

On top of the protests, the French have also taken to “boss napping.” Basically, when a “boss” informs employees that they are all being laid off, the workers will then hold the “boss” hostage until the boss delivers certain promises to the workers. I was on a France 24 news program last week debating the issue:

In a poll last week by the IFOP survey group for Paris Match magazine, 30% said they approved of taking managers hostage.” Another 63% said they “understood but don’t approve.” Only 7% said they “condemned” the practice. A separate poll taken a few days earlier by survey group CSA showed 45% approved of “bossnapping.”

The country today is different. America has an enormous middle class that is heavily invested in the financial system and is hardly about to organize for its overthrow.

This mentality, of course, allowed for the greatest transfer of wealth in America since the pilgrims first took this country from the original inhabitants. George Bush and Hank Paulson, with the help of their friendly media barons (the same ones that are now pumping faux populism), warned the country that if they didn’t hand over $700 billion for Hank’s three-page wealth transfer plan, the markets would crash. Well, the ransom got paid, and the markets crashed regardless, but at least the financial oligarchy got their bonuses.

People who have lost half the value of their 401(k) plans, in other words, want to regain it by having the economy rebound, not by seizing the assets of ExxonMobil Corp. People who have lost a home want to rebuild their credit and buy another one, not liberate the property of the wealthy.

As a broker, these are your favorite sort of clients. Desperate to make back lost money, they will hold on to the dear end, trading in and out in a panic.

Now these 401(k)-holding, shouting-at-the-television-screen-while-waiting-for-a-market-miracle citizens are about to find themselves at the other end of Geithner’s latest wealth transfer scheme masquerading as a bank bailout, the Public-Private Investment Program. According to this Bloomberg News commentary the scheme is a potential pump and dump scam:

The main premise of Geithner’s plan is that the banks’ toxic assets are now priced at artificially low levels. As the federal bailout program’s Congressional Oversight Panel wrote in an April 7 report, “Treasury has not explained its assumption that the proper values for these assets are their book values,” rather than the prices unsubsidized investors would pay for them.

If Treasury’s premise proves false, we may end up looking back on the Public-Private Investment Program as an elaborate pump-and-dump game. Only this time, unlike with the pools that sucked in gullible investors during the 1920s, the big losers would be taxpayers — who never had the choice of not playing.

Of course, these kind of scams are easier to execute on a 401(k) crowd that has proven they will pay the ransom quickly if held hostage as with the Hank Paulson’s three page wealth transfer plan.

Thomas Jefferson would be turning over in his grave if he saw that many of his predictions of a banking oligarchy had not only come true but that the population had remained so impotent, scared and silent in the face of it.

Weekly wages fell at the fastest rate in 60 years in February as City bonuses were slashed and workers agreed to reduced hours in the wake of recession, the latest official figures show. The Office for National Statistics said average weekly earnings fell 5.8pc compared with the same month last year, to £459.10. The private sector took the full force of the fall in weekly earnings, down sharply by 7.7pc at £463.50, while average weekly earnings in the public sector actually rose by 3.2pc to £442.90. Bonuses in the financial services fell to £549.90 a week in February - which is part of the peak period for bonus payments - from £1,312.80. "We certainly haven't seen anything like this in the last 60 years - and probably not in peacetime since the 1930s. In that sense it's much like everything else in the economy," said Michael Saunders, chief UK economist at Citigroup.

According to the ONS data, it is only the second month of falls during the current downturn, after weekly wages fell 1.9pc in January compared with a year earlier. The falls partly reflect moves by some private sector employees to freeze wages and even cut pay as they struggle to keep jobs and stay afloat during the recession. However, Mr Saunders said that the figures did not look as negative when bonus payments were excluded. "Indeed, after bonus period you may see earnings go slightly into positive territory." The Chartered Institute of Personnel and Development has on the other hand argued that with price deflation already a reality, the chances are that pay excluding bonuses will show "a further marked slump in the coming months".

Despite the gloomy economic backdrop, consumer confidence rose for the third month in a row in April, according to GfK NOP's latest survey. The GfK NOP Consumer Confidence Index ticked up three points to -27, the highest level since April 2008 and 12 points above the survey's lowest ever level of -39 in July last year. "Significantly, this is now the third consecutive month that we have seen a rise in the index – suggesting a definite upward trend - and it's largely driven by the public's perception that the next twelve months will be better for both our own personal finances and particularly for the economy in general," said Rachael Joy from GfK NOP. She added that the "feel-good" factor triggered by improving weather after the Easter bank holiday weekend could also have been a factor behind improved sentiment. However, the survey was conducted before the Budget was announced, so any impact it had on confidence will be contained within the May report.

Corporate earnings worldwide haven’t been the disaster analysts predicted as companies from Ford Motor Co. to Siemens AG beat earnings estimates through job cuts, factory consolidations and a dose of lowered expectations. "It’s one of those things where you walk away from the car crash and think, ‘Well, that could’ve been a lot worse,’" said Andy Lynch, who helps manage about $5 billion at Schroder Investment Management Ltd. in London. "The first quarter is marginally less catastrophic than feared." Some 188 members of the Standard & Poor’s 500 Stock Index have topped analysts’ estimates, or 69 percent of the 271 companies reporting so far. That’s more than the 62 percent for all of the previous quarter, Bloomberg data shows. In Europe’s Dow Jones Stoxx 600 Index, half of the 110 members reporting so far beat estimates, up from 38 percent in the previous quarter.

One reason is the low hurdle the companies set earlier this year by reducing forecasts, rather than any recovery from the deepest U.S. recession in a half-century, investors and analysts said. At the start of April, equity analysts estimated earnings among S&P 500 companies fell 37 percent in the first quarter. Six months earlier they had been calling for a 22 percent gain. "At the end of last year companies took a much more conservative stance," said Michael Jaffe, the senior director of industrial research at Standard & Poor’s in New York. "They were being ultraconservative and looking at the worst-case scenario. That would give them an opportunity to beat estimates. They didn’t want to try and promise too much, which was probably a smart move." U.S. employers have eliminated about 5.1 million jobs since the slump began in December 2007 in an effort to cut costs. U.S. gross domestic product dropped at a 6.1 percent annual pace in the first quarter and a 6.3 percent rate in late 2008, the Commerce Department said yesterday. European unemployment increased in February to 8.5 percent, the highest in almost three years.

Texas Instruments Inc., the second-largest computer-chip maker, on April 20 reported net income of 1 cent a share instead of the 4-cent loss that was the average estimate in a Bloomberg survey of analysts. The Dallas-based company in January announced plans to eliminate 12 percent of its jobs and in March forecast a loss of as much as 8 cents a share. "The industry has a much better ability to adapt to slowing demand than we as analysts were able to model," said Doug Freedman, an analyst at Broadpoint AmTech in San Francisco. "They were able to reduce their expenses at the same time as they worked down their inventory levels." Texas Instruments reduced costs by $115 million in the quarter, more than double the target of $40 million, Ron Slaymaker, its manager of investor relations, said in an interview. The company has gotten costs "realigned with the realities of the economic environment," he said.

Technology companies learned lessons from the industry’s bust earlier in the decade, when many were too slow to cut expenses, said Heather Bellini, a UBS Securities LLC analyst in New York. "Most of the companies, not all, have taken a much more aggressive approach as soon as they saw business start to decline," Bellini said. Munich-based Siemens, Europe’s largest engineering company, yesterday said operating profit at its main units rose 43 percent to 1.84 billion euros ($2.45 billion), ahead of analysts’ average estimate of 1.66 billion. Some 19,000 workers will be on shorter shifts by mid-year, Chief Executive Officer Peter Loescher said. He’s cutting costs in purchasing and administration to offset a slide in demand for automated factory controls and lighting. Europe’s Stoxx 600, up 1.5 percent today, is poised for the biggest monthly gain on record as German chemical supplier BASF SE joined the ranks of companies whose profit excelled.

Stockholm-based Electrolux AB and Dearborn, Michigan-based Ford were among the companies that beat estimates even while posting losses. Electrolux last week climbed to its highest stock price in seven months after reporting a net loss that was narrower than analysts predicted. The world’s second-biggest appliance maker cut 2,000 jobs and moved factories. Ford shares rose 11 percent on April 24 after the second- largest U.S. automaker reported a loss of 75 cents a share, excluding items it considers one-time costs, narrower than the $1.24 loss analysts predicted. Ford, the only U.S. automaker not on federal aid, reduced its worldwide employment by almost 4 percent in the quarter to 205,000 from 213,000 at the end of the year and cited $1.9 billion in savings, including more-efficient manufacturing. Midcontract concessions won in March will allow consolidation of vehicle assembly at two Michigan factories.

Out of 24 industry groups in the Standard & Poor’s 500 index, 21 groups have so far reported a lower average profit for the quarter and only three had gains: health care, real estate and utilities. Drugmakers turned in estimate-beating earnings built upon job cuts, plant closings and price increases adopted in recent years, said Les Funtleyder, a Miller Tabak & Co. health-care analyst in New York. New Brunswick, New Jersey-based Johnson & Johnson, the world’s largest health-care company, began paring as many as 4,400 jobs in 2007. New York-based Pfizer Inc. has cut 14,000 positions since then. Bristol-Myers Squibb Co., also of New York, has said it plans to remove $2.5 billion in costs over the next three years. All three beat profit estimates even as they said top-selling drugs lost sales to generic competitors in the first quarter.

Heerlen, Netherlands-based Royal DSM NV, the world’s largest maker of vitamins, earlier this week said operating profit plunged 76 percent to 57 million euros, exceeding the average estimate of 51 million euros. The company said it plans to cut 250 jobs beyond the 1,000 reductions already announced. Far from being a buy signal, sometimes earnings that beat estimates should be a "major red flag for investors" because they were achieved by cutting costs that may restrict growth, said David MacGregor, a Longbow Research analyst in Independence, Ohio. "The assets they are closing or rationalizing today, a year ago they would have said they needed for the recovery phase," MacGregor said. "Recovery is not imminent, and is far enough into the future that they are re-sizing the business to a much lower level."

U.S. consumer spending declined more than forecast in March after a two-month spurt, ending an unexpectedly strong quarter on a soft note and signaling any economic recovery will be gradual. Purchases decreased 0.2 percent after a 0.4 percent gain in February that was larger than previously estimated, the Commerce Department said today in Washington. Incomes fell for the fifth time in the last six months. Mounting unemployment and falling home values remain challenges for consumers, suggesting the biggest part of the economy may falter again in the second quarter and prolong the recession. Still, low borrowing costs and government stimulus may boost demand in the second half of the year, easing the economic slump.

"Consumers are not in a spending mode; they’re all about increasing savings and paying off debt." Michael Gregory, a senior economist at BMO Capital Markets in Toronto, said before the report. Another government report showed fewer Americans filed first-time applications for unemployment insurance last week. Initial jobless claims decreased by 14,000 to a less-than- forecast 631,000 in the week that ended April 25, Labor Department figures showed today in Washington. The number of people staying on jobless benefit rolls rose 133,000 to 6.27 million, the 13th straight week the figure has set a record.

Stock-index futures were higher after the reports, with futures on the Standard & Poor’s 500 index up 1.5 percent to 881.8 as of 8:35 a.m. in New York. Treasuries fell, pushing yields higher. Benchmark 10-year notes yielded 3.13 percent, up 3 basis points from yesterday. Economists forecast spending would fall 0.1 percent, after an originally reported 0.2 percent gain the prior month, according to the median of 69 estimates in a Bloomberg News survey. Projections ranged from a decline of 0.5 percent to a 0.4 percent increase. Incomes dropped 0.3 percent, after a 0.2 percent decrease in February. Today’s report also showed inflation cooled. The price gauge tied to spending patterns rose 0.6 from March 2008, compared with a 0.9 percent increase in the year ended in February. The Fed’s preferred gauge of prices, which excludes food and fuel, climbed 0.2 percent for the third month and was up 1.8 percent from the same time last year.

Adjusted for inflation, spending also dropped 0.2 percent following a 0.1 percent gain the prior month. Purchases decelerated throughout the quarter, putting the March total below the average for the period. The savings rate improved to 4.2 percent from 4 percent the prior month as consumers cut back. The higher the rate, the more Americans are saving. Disposable income, or the money left over after taxes, was unchanged for a second month. Adjusted for inflation, it was also little changed following a 0.3 percent decrease. Inflation-adjusted spending on durable goods, such as autos, furniture, and other long-lasting items, fell 0.8 percent last month after dropping 0.6 percent in February. Purchases of non-durable goods decreased 0.6 percent and spending on services climbed 0.1 percent.

Federal Reserve officials yesterday voted to keep the benchmark overnight lending rate between banks in a range of zero to 0.25 percent and said the pace of economic contraction "appears to be somewhat slower." "Household spending has shown signs of stabilizing, but remains constrained by ongoing job losses, lower housing wealth and tight credit," the Fed’s Open Market Committee said in a statement after its two-day meeting in Washington. The economy shrank at a 6.1 percent annual pace in the first quarter after falling at a 6.3 percent rate in the previous three months, making this the worst recession in a half century, figures from Commerce yesterday showed. Consumer spending, which accounts for 70 percent of the economy, rose at a 2.2 percent pace in the first quarter, more than twice as much as economists anticipated and the biggest gain in two years, the report also showed.

Still, consumers aren’t being extravagant. David Dillon, chief executive officer at Kroger Co., the largest U.S. grocery chain, said a drop in restaurant spending is boosting his company’s sales of rotisserie chickens and other deli foods to people "frightened" by the recession. "We are seeing customers buy fewer items, which suggests that they are not buying some of the discretionary items that they might have otherwise purchased," Dillon told analysts this week in New York. "Obviously they’re moving more to value." The auto industry last month recovered from the weakest sales in three decades by luring customers with bigger incentives. Still, carmakers General Motors Corp. and Chrysler LLC are fighting to survive. "We did see signs of life and we think we’re going to carry a little bit of momentum into April," Mark LaNeve, GM’s president for North America sales, said in an interview with Bloomberg Television on April 1. "Hopefully, we have bounced along and found the bottom and we’ll start firming up this industry."

U.S. and Canadian governments will provide about $15-billion (U.S.) in financing to Chrysler LLC to help keep it operating through bankruptcy protection, sources said Thursday. The federal and Ontario governments will provide about $3-billion, the sources said, which will cover debtor-in-possession financing and exit financing when the beleaguered auto maker emerges from Chapter 11 bankruptcy protection. The governments will hold a 10-per-cent stake in Chrysler, with the Canadian governments' stake sitting at 2 per cent. Chrysler is expected to file for bankruptcy protection on Friday. Talks between debt holders that were insisting on a higher cash payment than major banks accepted, broke down early Thursday, although the deadline for a deal is still 11:59 p.m. on Thursday.

A key piece of the Chrysler plan is in place, however, with the signing of a strategic alliance with Fiat SpA imminent and expected to be announced late Thursday morning by U.S. President Barack Obama, sources said. Fiat will take a 20-per-cent stake in Chrysler. If the No. 3 Detroit auto maker goes into bankruptcy protection as expected, it will be split into two companies, with its key Canadian operations being placed into the part of the company that will emerge from creditor protection and form the basis for the Fiat-Chrysler strategic alliance. Unwanted assets will be hived off into another company.

Talks between the Treasury Department and lenders aimed at keeping Chrysler LLC out of bankruptcy broke down late Wednesday, making it all but certain that the car maker will file for Chapter 11 protection Thursday, according to people familiar with the discussions. Administration officials, who have been braced for a Chrysler bankruptcy filing for weeks, say all the pieces are in place to get the country's third-largest employer through the court quickly, perhaps in a matter of weeks. The talks with Chrysler's lenders broke down after the Obama administration's automotive task force worked into the evening to persuade several hedge funds and other lenders to accept a deal to reduce Chrysler's debt, said people involved in the talks. The Treasury boosted its most recent offer to lenders on Wednesday by $250 million to $2.25 billion in cash for the banks and hedge funds to forgive $6.9 billion in Chrysler debt, people familiar with the matter said.

J.P. Morgan Chase & Co., which leads the creditor group as Chrysler's largest lender, gave the other 45 banks and hedge funds 90 minutes Wednesday evening to vote on the deal. A large number of the funds voted no and refused to budge, paving the way for an all but unavoidable trip to bankruptcy court, said people close to the talks. Chrysler's likely trip to bankruptcy court is a watershed moment for an iconic American car maker that popularized the minivan, is the home of the Jeep and managed to rebound from an earlier financial crisis in the late 1970s. But Chrysler's fortunes have faded rapidly since its breakup with Daimler AG two years ago. A trip through the courts will open a new chapter of uncertainty as the company's lenders and its thousands of affiliated dealers could mount a series of legal challenges to the administration's efforts to pull off a swift reorganization.

If the Obama administration's calculations are correct, the process should pave the way for Italian auto maker Fiat SpA to take over the American company. Bank holdouts may get blamed for pushing Chrysler into bankruptcy court. But there are other reasons behind the move. One reason Chrysler needs to file for bankruptcy protection is so that Fiat can clear out hundreds of auto dealers from its sales network, which is easier to do in bankruptcy where dealer franchisee agreements can quickly be rejected or amended. The auto maker also has asbestos and environmental liabilities that Fiat does not want and are more easily shed in bankruptcy court. The administration worked to the wire to seal a deal outside of court that would put Chrysler in an alliance with Fiat and forge a new arrangement between the car company and the United Auto Workers union. Chrysler's UAW membership passed a related negotiated deal with the car company late Wednesday. Fiat is expected to signal its approval for an alliance with Chrysler on Thursday.

Administration officials said they remained confident that Chrysler could shed much of its debt and come out of a court-supervised restructuring as a much stronger company. They ruled out the possibility that Chrysler could end up being liquidated and sold off in pieces. Despite shrinking radically in recent years, Chrysler still employs about 55,000 people in the country with assembly and parts plants all over Michigan, Ohio and Indiana. President Barack Obama said Wednesday he is "very hopeful" of a resolution that maintains Chrysler as a viable auto company. "I think some tough choices are being made" by Chrysler's lenders and workers, Mr. Obama said in response to questions at a prime-time news conference. If Chrysler were to file for bankruptcy, "it would be a very quick type of bankruptcy," Mr. Obama added.

The Obama administration last night planned to send Chrysler into bankruptcy, replace chief executive Robert L. Nardelli and pump billions of dollars more into the effort, all in hopes the company can emerge from court proceedings as a reenergized competitor in the global economy. Government officials clung to 11th-hour hopes last night that bankruptcy could be averted, but talks broke down with Chrysler's creditors. A bankruptcy filing could happen as soon as today. The U.S. government's attempt to save the automaker amounts to another extraordinary intervention in the economy and a landmark event in the history of the American auto industry.

Under the administration's detailed court strategy, ownership of Chrysler would be dramatically reorganized, the leadership of Italian automaker Fiat would take over company management and the U.S. and Canadian governments would contribute more than $10 billion in additional funding. Company and government officials had feared that a bankruptcy would stain the brand, shake customer confidence and erode sales, but the administration said it would seek to use the process to create a new Chrysler company. Its ownership would be divided, with the company's union retiree health fund receiving a 55 percent stake, Fiat would claim as much as a 35 percent share and the United States would take 8 percent. The Canadian government would receive two percent.

The automaker's current majority owner, the private-equity firm Cerberus Capital Management, would have its holdings wiped out. During the bankruptcy, the governments would provide about $4 billion in new funds, with 80 percent coming from the United States and 20 percent from Canada, which hosts a number of Chrysler operations. As the company emerged from its reorganization, the United States would provide roughly another $5 billion, with more coming from Canada, the sources said. The sources warned, however, that the figures were fluid. Particularly striking to some economists and historians is that the plan turns over ownership of a major U.S. industrial company to an employee-run trust, a deal that is "unprecedented on this scale," according to Harley Shaiken, a University of California at Berkeley professor and expert on unions.

The government plan also calls for ensuring that Chrysler maintains substantial U.S. manufacturing operations. It requires that at least 40 percent of company sales volumes remain manufactured domestically, or for the company's total production in this country to remain at least at 90 percent of its U.S. production last year. "Anyway you cut it, the union is going to be a major presence at the company," Shaiken said. One key issue, however, will be who appoints the restructured Chrysler's board of directors. The government's bankruptcy plan envisions a company with nine board seats, three of them appointed by Fiat. It does not specify who would appoint the rest. In April, Nardelli sent a letter to employees indicating that the U.S. government would play a key role. "Upon successful completion of the alliance, a board of directors for Chrysler will be appointed by the U.S. government and Fiat," he wrote. "The majority of the directors will be independent (not employees of Chrysler or Fiat)." Negotiations between the government and the company's stakeholders -- Chrysler's lenders, the union and proposed merger partner Fiat -- went well into the night, as dealmakers rushed to meet President Obama's April 30 deadline.

Last night, the United Auto Workers union overwhelmingly ratified the administration proposal to give its retiree health fund the 55 percent equity stake in Chrysler. In exchange, the health fund must give up its claim to much of the $10 billion that Chrysler owes it. Eighty-two percent of production workers and 80 percent of skilled-trades workers voted for the agreement. "This has been a challenging time filled with anxiety and uncertainty for our membership," said UAW President Ron Gettelfinger in a statement. "Our members have responded by accepting an agreement that is painful for our active and retired workers, but which helps preserve U.S. manufacturing jobs and gives Chrysler a chance to survive." Fiat also continues to negotiate its merger, though the structure of that deal is in place: Fiat would get a 20 percent stake in the U.S. automaker in exchange for its small-car technology and global distribution network. If the company reaches performance milestones, it could gain as much as a 35 percent stake.

Fiat intends to form an alliance with Chrysler even if the company goes into bankruptcy, said a source familiar with the talks. The Italian carmaker has been, "like everyone else, sitting around waiting for the rest of the lenders to strike a deal," the source said. Indeed most of the friction in the Chrysler dealmaking has revolved around efforts to get the company's secured lenders -- to whom Chrysler owes $6.9 billion -- to accept a small fraction of that amount. The Treasury Department is pressing them to write that down to $2.25 billion, and officials spent much of yesterday in last-minute negotiations with the lenders. While four of Chrysler's major creditors -- J.P. Morgan Chase, Citigroup, Goldman Sachs and Morgan Stanley -- have agreed to the Treasury's plan, other lenders, mainly hedge funds, had held out. The holdouts included Oppenheimer Funds, Perella Weinberg Partners and Stairway Capital, two sources said. The last two have funds that invest in "distressed" companies. It is not known what companies ultimately failed to reach agreement with the government.

The hedge funds likely think they could get a better return in a bankruptcy filing or in a sale of Chrysler's assets, said Sheldon Stone, a turnaround expert at Amherst Partners. The government offer made yesterday would represent a recovery of about 32 cents on the dollar. A recent Standard & Poor's analysis said the lenders could recover 30 to 50 cents on the dollar. "These rogue hedge funds are not coming in line because they feel like the government is attempting a cramdown, which is essentially a take it or leave it deal," Stone said. Because those hedge funds continued to resist efforts to make such a deal, a bankruptcy filing appears to be inevitable. Bankruptcy enables a company to shed some debt and other obligations, and a court could force the recalcitrant hedge funds to accept the deal that the large banks have.

The court proceedings could also help the company cut the costs of closing some of its 3,200 Chrysler, Jeep and Dodge dealerships. Because some state franchise laws prevent automakers from forcing dealers to close, it can be expensive to buy them out. In bankruptcy, however, a judge could eliminate dealerships. Fearing this prospect, the National Automobile Dealers Association has hired a law firm to protect Chrysler dealers in case of bankruptcy. Despite the advantages, the damage to Chrysler's name and the uncertainty about the duration and outcome of the court proceedings had government officials planning to work late in last-ditch attempts to avert that possibility. Whatever the outcome, Obama told reporters last night that he is hopeful that Chrysler can once again become viable. "I'm feeling more optimistic than I was about that getting done," he said.

Chrysler LLC is expected to file for bankruptcy protection in the United States by the end of the week and the Canadian and Ontario governments will jump in to help backstop the company with financing that will enable it to keep making and selling cars while it restructures, sources said. The bankruptcy filing is expected even though a deal by Fiat SpA to create a strategic alliance with the No. 3 Detroit auto maker was described by a source as "90-per-cent done" last night with an announcement expected today as the most critical week in the life of Chrysler reaches a climax. The participation of the federal and Ontario governments acting alongside the U.S. Treasury Department to provide what is known as debtor-in-possession (DIP) financing means there is a high probability that Chrysler Canada Inc. will not separately be placed in bankruptcy protection under the Companies' Creditors Arrangement Act, sources said.

Federal sources said, however, that Ottawa will refuse to participate in the DIP financing if Fiat does not complete the deal to become a strategic partner with Chrysler and owner of a 20-per-cent stake in the teetering auto maker. The moves by the two Canadian governments to help refinance Chrysler will ensure that its Canadian subsidiary becomes part of the new company that will emerge from bankruptcy protection, sources close to the negotiations said. The restructuring plan calls for Chrysler to be split into two companies, one with the operations Fiat wants to keep and the other containing assets that will be liquidated. Sources cautioned that the situation was still highly unsettled last night as the U.S. Treasury Department negotiated with some debt holders that oppose a debt-for-cash swap some major banks have already accepted.

Chrysler is plotting an ambitious and unusual bankruptcy strategy for the Canadian subsidiary, which operates three plants and employs about 9,400 people in Ontario. According to people familiar with the discussions, the company's executives and advisers want to keep the Canadian operations outside of bankruptcy-protection proceedings to allow the head office to have more control over the restructuring process. Canadian subsidiaries typically file for CCAA protection to shield their operations while refinancing under court supervision. Chrysler, sources said, is concerned that the CCAA process may erode Detroit's influence over its branch plant because Canadian laws, unlike those in the United States, give enormous powers to court-appointed monitors to steer a restructuring on behalf of such Canadian stakeholders as creditors and employees. A full CCAA filing could also trigger cross-border fights between creditors.

To sidestep the need for a traditional Canadian court restructuring process, people familiar with the discussions said Chrysler will seek court approval for what one person described as a streamlined or "skinny" CCAA filing. Chrysler is expected to ask an Ontario court to approve a so-called Section 18 filing that will put the Canadian operations under partial court supervision, while the Detroit parent runs the overall process. Typically an information officer, rather than a monitor, is appointed under this type of filing and Canadian operations are not shielded from creditor claims. "Chrysler has a small footprint in Canada, so this could be a very elegant solution," said one person familiar with the plan. Chrysler's plan cannot work in Canada, sources said, unless it wins support from suppliers and creditors. It is understood the company intends to meet each of its creditor groups to outline its plans to pay all of its bills in the short term. Over the longer term, the company is seeking to sharply reduce its supplier group.

The Canadian branch plant has little debt, but one of its biggest creditors is a group of 450 dealers who sell its cars across the country. In recent days the dealers have formed a committee and hired a law firm to represent them. "The dealers have clout and they are something to be afraid of," said one person close to the group. If the dealers or other creditors oppose the plan for a streamlined CCAA filing, legal experts said the company could be forced to file for full CCAA protection, which would slow Detroit's plans to transform the company. U.S. President Barack Obama is scheduled to make an announcement on Chrysler this morning. The Wall Street Journal reported that one speech outlined that Chrysler would be placed in bankruptcy protection while another said the company has been able to complete its restructuring outside bankruptcy protection.

"We're hoping that you can get a merger where the taxpayers will put in some money to sweeten the deal but, ultimately, the goal is we get out of the business of building cars, and Chrysler goes and starts creating the cars that consumers want," he said. The U.S. and Canadian governments set today as the deadline for Chrysler to come up with a survival plan that includes the alliance with Fiat and agreements with the Canadian Auto Workers and United Auto Workers unions to dramatically slash hourly labour costs. Prime Minister Stephen Harper, Industry Minister Tony Clement and Ontario Premier Dalton McGuinty are holding a news conference this afternoon that officials say will be about Chrysler. Members of the CAW work force at Chrysler Canada's three plants approved concessions on Sunday. UAW members in the U.S. overwhelmingly ratified a settlement deal on concessions with Chrysler last night.

Efforts to stabilise the financial system could end up costing US taxpayers about 13.3 percent of annual output, or $1,900bn, over the next five years, according to analysis by the International Monetary Fund. The dollar estimate, calculated by the Financial Times, equates to about $6,200 (€4,650, £4,200) per head of the population. The assessment is part of a research project that was updated for last weekend’s IMF spring meeting. US officials yesterday challenged the methodology used in the analysis and said the cost estimate looked far too high. The IMF research suggests that the medium-term cost of stabilising the financial system relative to gross domestic product will be even greater in the US than in the UK, in spite of the fact that the US banking system is much smaller as a proportion of GDP.

It also suggests emergency action taken by the Federal Reserve and the Federal Deposit Insurance Corporation could end up costing US taxpayers more than bail-outs financed from the $700bn congressionally authorised Troubled Asset Relief Programme. IMF economists looked at costs net of recoveries over five years on direct support (including capital injections and asset purchases), bank funding guarantees and non-standard central bank loans. Their work suggests that direct support could cost taxpayers about $450bn over the period, while guarantees (primarily by the FDIC) could cost about $800bn and non-standard liquidity operations (overwhelmingly by the Fed) about $600bn. The estimate of the cost of guarantees is based on institution-by-institution analysis of likely defaults and recovery rates, while the cost of Fed loans is based on a 90 percent recovery rate.

Mexican President Felipe Calderon told his people to stay home from Friday for a five-day partial shutdown of the economy, after the World Health Organization said a swine flu pandemic was imminent. Calderon ordered government offices and private businesses not crucial to the economy to stop work to avoid further infections from the new virus, which has killed up to 176 people in Mexico and is now spreading around the world. "There is no safer place than your own home to avoid being infected with the flu virus," Calderon said in his first televised address since the crisis erupted last week.Twelve countries have reported cases of the H1N1 strain, with the Netherlands the latest to join the list. It said a three year-old child had contracted the virus. Switzerland also confirmed its first case on Thursday, saying a man returning from Mexico had tested positive for the flu. Peru reported the first case in Latin America outside Mexico.

Texas officials on Wednesday reported the first swine flu death outside Mexico, a 22-month-old Mexican boy on a visit. The WHO raised the official alert level to phase 5, the last step before a pandemic. "Influenza pandemics must be taken seriously precisely because of their capacity to spread rapidly to every country in the world," WHO Director General Margaret Chan told a news conference in Geneva on Wednesday. "The biggest question is this: how severe will the pandemic be, especially now at the start," Chan said. The world "is better prepared for an influenza pandemic than at any time in history," she said. WHO has stopped short of recommending travel restrictions, border closures or any limitation on the movement of people, goods or services. Mexico's peso currency weakened sharply early on Thursday after the government called for chunks of the economy to close. The peso fell 1.6 percent to 13.83 per dollar. But world stocks struck a four-month peak, powered by gains in Asia on Thursday, as investors took heart from signs of improvement in the U.S. economy.

Earlier in the week markets fell on worries that a major flu outbreak could hit the struggling global economy. Almost all those infected outside Mexico have had mild symptoms, and only a handful of people have been hospitalized. In Mexico City, a metropolis of 20 million, all schools, restaurants, nightclubs and public events have been shut down to try to stop the disease from spreading, bringing normal life to a virtual standstill. Spain reported the first case in Europe of swine flu in a person who had not been to Mexico, illustrating the danger of person-to-person transmission. Several countries have banned pork imports though the World Health Organization says swine flu is not spread by eating pork. President Barack Obama said told an evening news conference at the White House on Wednesday there was no need for panic and rejected the possibility of closing the border with Mexico.

"At this point, (health officials) have not recommended a border closing," he said. "From their perspective, it would be akin to closing the barn door after the horses are out, because we already have cases here in the United States." Obama also praised his predecessor for stockpiling anti-viral medication in anticipation of such an outbreak. "I think the Bush administration did a good job of creating the infrastructure so that we can respond," Obama said. "For example, we've got 50 million courses of anti-viral drugs in the event that they're needed." Masato Tashiro, head of the influenza virus research center at Japan's National Institute of Infectious Disease and a member of the WHO emergency committee, told Japan's Nikkei newspaper it appeared the H1N1 strain was far less dangerous than avian flu. "I am very worried that we will use up the stockpile of anti-flu medicine and be unarmed before we need to fight against the avian influenza. The greatest threat to mankind remains the H5N1 avian influenza." Guan Yi, a microbiologist at the University of Hong Kong, said the swine flu virus could mix with avian flu, or H5N1.

"If it goes to Egypt, Indonesia, these H5N1 endemic regions, it could turn into a very powerful H5N1 that is very transmissible among people. Then we will be in trouble, it will be a tragedy." The WHO's Chan urged companies who make the drugs to ramp up production. Two antiviral drugs -- Relenza, made by GlaxoSmithKline and Tamiflu, made by Roche AG and Gilead Sciences Inc -- have been shown to work against the H1N1 strain. Mexico's central bank warned the outbreak could deepen the nation's recession, hurting an economy that has shrunk by as much as 8 percent from the previous year in the first quarter. The United States and Canada have advised against non-essential travel to Mexico, and the European Union's health commissioner advised against non-essential travel to areas badly hit by swine flu. Many tourists were hurrying to leave Mexico, crowding airports. Japan's Masato Tashiro said the possibility of an overreaction to the outbreak was a concern. "Excessive curbing of corporate activity will be a problem. The best course of action is to adopt rational measures."

Federal Reserve officials left the door open to boosting their emergency programs to aid financial markets and the U.S. economy even as the worst recession in five decades shows signs of waning. The Fed’s Open Market Committee voted unanimously yesterday to keep unchanged its targets for purchases of long-term Treasuries and housing debt announced last month. At the same time, the panel will "continue to evaluate the timing and overall amounts" the central bank buys. Chairman Ben S. Bernanke and his team are still focusing more on whether to increase Fed aid than on crafting an exit strategy from a record expansion of credit to banks and other firms. While the contraction has slowed and outlook "improved modestly," the economy may "remain weak" as job losses and "tight credit" inhibit consumer spending, the FOMC said.

"The worse it gets, the more the Fed will do," said William Ford, a former Atlanta Fed chief who’s now at Middle Tennessee State University in Murfreesboro. "They are keeping their powder dry. They will react as things develop, and they are not locking themselves into anything." The Fed said it will keep purchasing as much as $1.25 trillion of mortgage-backed securities, $200 billion of federal agency debt and $300 billion of Treasuries as part of efforts to reduce home-loan rates and "improve overall conditions in private credit markets." Officials cut the benchmark lending rate to as low as zero in December and switched their policy to using direct bond purchases and loans to support credit markets. Yesterday, the Fed left the target range for the federal funds rate unchanged at between zero and 0.25 percent, reiterating that the benchmark rate will probably remain "exceptionally low" for an "extended period.

The Fed released its decision hours after the Commerce Department reported the U.S. economy contracted at a 6.1 percent annual pace in the first quarter, reflecting declines in housing and a record slump in inventories. The economy shrank at a 6.3 percent annual rate in the last three months of 2008. Policy makers are "saving ammunition," said Bill Gross, who run the world’s biggest bond fund at Pacific Investment Management Co. "By no means are we out of the woods." "The real problem is a de-levering economy that continues and is requiring Fed purchases," he said in a Bloomberg Television interview. The Commerce Department report showed a 2.2 percent gain in consumer spending in the first quarter, the most in two years. Consumer spending accounts for 70 percent of the economy. "Household spending has shown signs of stabilizing, but remains constrained by ongoing job losses, lower housing wealth and tight credit," the FOMC statement said. "Weak sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories, fixed investment, and staffing."

The world’s largest economy has shrunk 3.3 percent since peaking in last year’s second quarter, already making this the second-worst recession since the Great Depression. GDP shrank 3.8 percent during the 1957-58 contraction, according to figures from the Bureau of Economic Analysis. The FOMC yesterday maintained its commitment to "employ all available tools to promote economic recovery and to preserve price stability." The Fed "will continue to carefully monitor the size and composition" of the central bank’s balance sheet, which has more than doubled to $2.2 trillion in the past year. "They wanted to strike a balance," said Jay Bryson, chief global economist at Wachovia Corp. in Charlotte, North Carolina, and a former Fed economist. "We are not to the point where they can declare the economy has hit bottom."

The public won’t get full details on how Fed officials adjusted their outlooks until May 20, when the central bank releases minutes of this week’s meeting. That report will include a new round of quarterly economic projections of growth, inflation and unemployment from the Fed’s five governors and 12 district-bank presidents on the FOMC. Bernanke said in an interview with CBS’s "60 Minutes" program that aired March 15 that the Fed’s efforts had brought down mortgage rates, among evidence of "green shoots" in some markets. The Fed chief said last month there were signs that the "sharp decline" in the economy was slowing, indicating a potential "first step" toward a recovery. The central bank refrained from shifting monetary policy as it prepares with other regulators to release results next week on tests of whether 19 of the largest U.S. banks could weather a worsening economy. That may signal that officials are confident the stress-test results won’t shock investors. The FOMC decision "certainly lends itself to that perception," said Keith Hembre, a former Fed researcher who is now chief economist at U.S. Bancorp’s FAF Advisors Inc. in Minneapolis.

The Bank of Japan on Thursday downgraded its outlook for economic growth to a record low level, predicting a 3.1% contraction in gross domestic product this fiscal year but maintaining hope that the economy will pull out of its slump in the second half. BOJ Gov. Masaaki Shirakawa told reporters Thursday afternoon, after the bank issued its semiannual outlook report on the economy and prices, that he expects the economy to pick up at a moderate pace in the latter half of fiscal 2009. But he added that he remains on guard against downside risks. "We are still watching economic and price downside risks," Shirakawa said, hours after the bank's policy board voted unanimously to keep its policy interest rate unchanged at 0.10%. "As the central bank, we will make every effort to get the economy back on to a recovery path."

He also said that while the quickly spreading swine flu has had just a limited on global financial markets so far, it could become another downside risk to the world economy. Shirakawa didn't provide any clear hints on what the BOJ will do next to try to boost Japan's economy, only showing his unwillingness to boost the BOJ's purchases of Japanese government bonds and saying the bank will keep an eye on economic and price developments at home. The projection of a 3.1% contraction in GDP this year represents the bank's lowest estimate since World War II, and was a sharp downgrade from the 2.0% fall the BOJ envisioned in its January interim report on the economy. "Economic conditions in Japan have deteriorated significantly," the central bank said in its outlook report. "In the corporate sector, exports (have) decreased significantly due to a sharp downturn in overseas economies, and business fixed investment (has) also declined substantially, reflecting the deterioration in corporate profits and financial conditions."

Yet some found reason for optimism in the report, which came on the same day that government figures showed a much better-than-expected 1.6% rise in industrial production in March. "All forecasts remain very fluid, but the expectation ... had suggested a GDP forecast of around minus 4.0%" for fiscal 2009, Macquarie Research economic Richard Jerram said. "From that perspective, the BOJ looks more positive than expected." "The text of the report suggests the BOJ thinks the economy is near a bottom, but is cautious on the speed of recovery," Jerram said. Earlier this week, Japan's government also lowered its economic outlook to a record 3.3% contraction for fiscal 2009. The BOJ's downward revision suggests it could take additional steps to prop up the economy in tandem with the government, which on Monday finalized a Y13.9 trillion supplementary budget bill to fund its latest stimulus package.

The BOJ did seem less pessimistic about the future in the April economic report. A mild recovery should begin in the second half of fiscal 2009 as the downturn in industrial production and exports bottoms out and inventory adjustments advance, the BOJ said. These prospects came after Group of Seven finance officials and central bankers, gathering in Washington last week, agreed the economic outlook has improved and that a global recovery could start later this year. In fiscal 2010, which begins next April, the BOJ board expects real GDP to climb by 1.2%, down from the 1.5% rise they had anticipated in January. Shirakawa acknowledged that the government's latest economic-stimulus package, which includes Y15.4 trillion in fresh fiscal spending, should help the economy bounce back to some extent. The Ministry of Finance announced Monday that it will issue Y10.8 trillion worth of additional debt to pay for the new steps, and speculation had grown that the central bank would decide it needs to purchase more government bonds. But Shirakawa again ruled that out.

If the market starts to believe that the BOJ is buying JGBs to finance government spending, "that will likely hurt the credibility of monetary policy and exert a harmful influence on long-term interest rates," Shirakawa said. The BOJ's JGB purchases are "a part of monetary policy. The current amount is best," he said. Meanwhile, the board on Thursday forecast a decline this fiscal year in the core consumer price index, which excludes fresh food prices, of 1.5%, lower than the January projection of a 1.1% slide. The BOJ also forecasts core CPI to fall 1.0% in fiscal 2010. Shirakawa said that doesn't mean Japan is more at risk of falling into a deflationary spiral, but the CPI figures caught analysts' attention. "The prediction of sustained deflation is more of an issue," Macquarie's Jerram said. "In effect, the BOJ is predicting that it will fail to deliver on its mandate of price stability (which it continues to define at 0-2% inflation), but is doing nothing to try to prevent such an outcome. Despite this, there is little political pressure on the BOJ to be more radical."

Federal investigators looking into possible accounting violations at Freddie Mac are raising questions about whether the giant government-backed mortgage company improperly delayed the recognition of billions of dollars of losses, according to people familiar with the matter. A confidential February 2008 report by the investigative firm Kroll concluded that "inappropriate application" of accounting rules "enabled Freddie to defer billions of dollars of losses incurred from 2001 through 2004" on derivative contracts whose value depends on fluctuations in interest rates, according to people involved in the matter. Those losses, currently pegged at about $3.7 billion, are due to be gradually recognized in quarterly earnings statements over the next several years.

Investigators from the Federal Bureau of Investigation have obtained a copy of that report, which was never publicly released, and recently sought more information on the issue, these people said. The Justice Department and the Securities and Exchange Commission have been investigating a range of accounting practices at Freddie Mac and its larger rival, Fannie Mae, for at least six months. Both firm have disclosed the investigations but haven't provided details on the questions being raised. A spokeswoman for Freddie said: "We are confident that our accounting treatment was appropriate and consistent with all applicable accounting guidance." A spokeswoman for Kroll, a New York-based unit of Marsh & MacLennan Cos., declined to comment. The regulator, the Federal Housing Finance Agency, said it had decided early last year "not to take issue with the accounting" despite the findings of Kroll, which had been hired by the regulator to look into the matter, a spokeswoman for the agency said. She cited "disagreement among the experts" and Freddie's defense of its accounting.

Freddie has long used interest-rate swaps, a type of derivative, describing them as a way to hedge against fluctuations in interest rates. Until 2004, Freddie used a set of rules known as "hedge accounting" to recognize gains or losses on such derivatives over many years rather than including them immediately in earnings. An accounting scandal in 2003 forced Freddie to re-examine many of its policies after auditors found that it had violated rules in an attempt to smooth out earnings. A year later, still struggling to clean up its books, the company decided to stop using hedge accounting for the swaps and to recognize gains and losses immediately. But the decision to give up hedge accounting wasn't applied retroactively. As a result, about $7.9 billion of losses on the derivatives were deferred as of Dec. 31, 2004, and were scheduled to be recognized in earnings gradually over the next decade. By Dec. 31, 2008, the amount of deferred losses was still $3.68 billion.

Kroll accounting experts found that Freddie didn't qualify for hedge accounting on those losses and should have recognized them when they were incurred, according to a person familiar with the report. When the regulator raised questions in 2007 about whether these losses should be recognized through a restatement of earnings, Freddie resisted, according to people familiar with the discussions. A restatement would have depleted Freddie's capital by several billion dollars while it was already being forced to raise new funds via preferred stock. In early 2008, the regulator sent a letter to Freddie criticizing certain accounting practices related to the swaps but saying that a restatement wasn't required, according to a person who saw the letter.

Forget the boardroom drama at Bank of America -- the 'quants' are brewing real trouble at Morgan Stanley. There's an old journalism maxim about storytelling: People like to read about people, which is why Ken Lewis, Bank of America Corp.'s chief executive and ousted chairman, is grabbing attention and headlines this week, while Morgan Stanley's talks to spin off its capital-intensive, risk-taking trading arm go largely ignored. This is a critical mistake. The impact of Mr. Lewis's transgressions are largely behind us -- the bank has absorbed the acquisitions of Countrywide Financial Corp. and Merrill Lynch & Co., and it is moving on. Whether shareholders wish to pull Mr. Lewis's chairman title holds little more than symbolic meaning. Meanwhile, Morgan Stanley's speculative move could create another highly leveraged, cowboy trading operation that directly undermines efforts to repair and reform Wall Street.

Mr. Lewis' counterpart at Morgan Stanley, John Mack, has proposed jettisoning his bank's freewheeling, gambling trading division, which bears more resemblance to a hedge fund than a commercial bank. Spinning off the company's Process-Driven Trading unit could put it beyond regulators' jurisdiction and create yet more outsize risk for the company and the financial system. Unlike Mr. Lewis, who added only to the misery of his shareholders, Mr. Mack could be compounding the problem by proposing a structure that other banks could easily adopt. Last fall, Morgan Stanley became a bank holding company, a status that subjects it to stricter limits on how much risk it can take and more consuming regulation by the Federal Reserve and other government agencies. It's a stark change for an investment bank like Morgan Stanley, which essentially is swapping a seat at the craps table for a perch chair at the church bingo game.

The proposed move for PDT is at least partly aimed at evading government controls set by the Troubled Asset Relief Program, from which Morgan Stanley took $10 billion and is in no hurry to pay back. When Morgan Stanley announced its first quarter results April 22, Mr. Mack sounded a different tone than his rivals. He did not beat his chest and suggest that he was returning TARP money. Instead, his firm posted a $177 million loss. By moving PDT out of Morgan Stanley's corporate structure, either through a spin-off, joint venture or simply by opening up to third-party investors, Mr. Mack is trying to free the unit from Morgan Stanley's direct control. The new unit would be free of compensation limits, and worse, as a quasi-independent institution, PDT arguably would be free of restrictions on how much leverage it can take. People familiar with the plan deny this, of course. And since the plan came to light last week, the company has backpedaled.

Now, they argue that any move for PDT probably would have to carry the Fed's blessing. They say PDT employees are paid under contract and wouldn't be subject to government limits. They also say that no joint venture or spin-off is being planned. PDT and its chief, Peter Muller, only want clearance to take investment cash from third parties. This idea, they say, was floated 18 months ago. Morgan Stanley insiders also say that because the firm will keep its full interest in PDT, it will be hard to increase trading risk without triggering alarms. Morgan Stanley defenders point out that the bank is reducing risk, not embracing it. At the end of the first quarter, Morgan Stanley's firm-wide leverage ratio was about 11 to 1, down from 32-to-1 leverage ratio the firm carried before the financial crisis. The $1 trillion balance sheet of 2007 is now about $650 billion. Perhaps, but times have changed – a fact even some people at Morgan Stanley recognize. There is at least some concern at Morgan Stanley that breaking out PDT at this stage may be bad timing.

Despite the promises of good behavior, there are no guarantees. And the company's cagey responses don't instill much trust. Company officials will not reveal PDT's current leverage ratio. They won't promise that risk will remain at current levels. They won't disclose, or don't know, how much counterparty risk – the kind that sank Lehman Brothers, Bear Stearns and nearly toppled American International Group last year – is at PDT. Nor do Morgan Stanley officials deny a troubling part of a Wall Street Journal report that revealed the contemplated plan for PDT: back in 2007 the trading arm lost close to $500 million in about a month. This is the nature of so-called quantitative trading groups such as PDT. They require huge sums of money and are vulnerable to unexpected market swings, the kind that have marred the last two years of trading.

You're probably familiar with other quants out there, such as SAC Capital Advisors and Renaissance Technologies. And if you're familiar with Long-Term Capital Management, you already know what risks quants bring to the marketplace. Mr. Mack, who was president of Morgan Stanley when it contributed $300 million to the $3.6 billion bailout of LTCM in 1998, is well aware of quants' rewards and risks. Morgan Stanley has enjoyed big trading profits as a result of this unit, but it's also endured nerve-shattering risk. The Ken Lewis drama will resolve itself, and the chattering hordes will move on. But Wall Street, always more interested in ideas rather than people, will follow Morgan Stanley's move -- and taxpayers will shoulder the risk again.

Goldman Sachs, one of the 19 banks given preliminary results of the US government’s stress tests on Friday, on Wednesday sold $2bn of bonds without a federal guarantee to investors. The securities offering, conducted in the week before the test results are made public, led to concerns that Goldman was pushing the boundaries of the bank’s agreements with regulators to keep the outcome of the tests confidential. Corporate governance experts questioned Goldman’s timing. "It is an odd day to raise debt. Out of an abundance of caution, Goldman should have waited until all material information was in the public domain," said Charles Elson, director of the corporate governance centre at the University of Delaware.

The debt offering was a clear signal to investors that the preliminary test results were "not unexpected", said a person close to Goldman, who said that the bank had determined this outcome did not constitute "material" information. Goldman declined to comment. The Federal Reserve declined to comment. Goldman has said it plans to pay back $10bn it received from the US government’s bank recapitalisation scheme after the stress tests are complete, and this month raised $5bn of new equity capital. Goldman’s five-year notes carried a 6 per cent interest rate and were priced to yield 410 basis points over similar-dated Treasuries. This was cheaper than the $2bn of 10-year notes it sold in January, which were priced at 500 basis points over similar Treasuries.

View everything that has happened so far in the global economy as The Crisis, Part One. What is still to come is Part Two - and it's going to be worse. Why? Because we are going to get slammed with the effects of rapidly rising unemployment where it hurts most: consumption makes up 70% of GDP. No job, no spending.

Look at the chart below (click to enlarge): employment (blue line) is dropping at the fastest rate in 60 years. Meanwhile, total population is still rising at over 1% per year.

And here's the government's increasingly pressing Keynesian dilemma: borrowing trillions to salvage the financial sector from its own perfidy makes it all that harder to go on a public spending program to boost jobs and incomes in a counter-cyclical fashion.

But isn't all this new "bail-out money" created by the Fed and Treasury going to eventually find itself in the pockets of Mr. and Mrs. Average Joe? No, it won't - and AIG is the perfect example why: the $182.5 billion in public money it received to cover its CDS-related losses was immediately recycled back into the Wall Street trough. Goldman Sachs, JP Morgan, et. al. are not exactly hurting and in no way contributing to balanced income re-distribution. Even if Wall Street bonuses are "slashed" by 50% (and they most certainly aren't) it still means a huge chasm in income disparity.

Let's see things for what they are, right now:

Until 2008 tens of millions of American Average families supplemented their increasingly insufficient wages and salaries by borrowing. They didn't do so to buy into a Rich and Famous lifestyle, but to continue the American Dream middle class existence they inherited from their parents. A modest house, a nice car, college, medical care, a bit of vacation. This package, unfortunately, became unaffordable as real incomes stagnated; so household debt soared, instead.

The debt bubble blew out of all proportion and finally burst. All that so-called innovative finance did with its inumerable alphabet derivative contraptions was to mask reality and keep the party going for just a bit longer.

Households cannot borrow as before and cannot resume consuming at their previous pace. Thus, GDP will continue to drop until it gets in balance with the carrying capacity of earned incomes.

Since the government is not currently providing Keynesian fiscal stimulus to the real economy this process will be drawn out and unemployment will continue to rise.

Bottom line: our previous economic "growth" was a debt-induced mirage and has now disappeared. Current global economic policy measures are aimed almost 100% at salvaging the bankrupt and discredited (literally) financial sector. This will prove a huge and costly policy mistake that will quickly backfire as the real economy continues to adjust downward to its "natural", lower debt state.

The Conference Board yesterday announced that its reading of consumer confidence for the month of April jumped a very significant 13.2 points, from 26 to 39.2. On the face of it, this sounds very encouraging - until we dig a little deeper: the rise was almost entirely due to a jump in the Expectations Index, up almost 20 points. The Present Situation Index was almost unchanged, as were other sub-indexes that measure current business conditions and job prospects. Hope dies last?

As I said in the previous post [scroll down, see point (b)] we are in the midst of a manufactured feedback loop that is aiming to boost peoples' morale. The stockmarket's recent performance is a big factor in all of this, no doubt. An entire generation of Americans (and plenty of others, too..) has grown up with the religious belief that green "up" arrows on the Dow scrolling below their CNBC screen is - somehow - a good thing for them, even if they own zero stocks and bonds.

For them, I suggest they should instead look at this chart, below: continued claims for unemployment insurance as a percent of the civilian labor force, i.e. the real economy, right now. Unfortunately, it doesn't look good; if we reach the 5% level of 1975, then we are looking at an additional 2 million continuing benefit claimants, on top of the record 6.1 million currently.

And if things get significantly uglier (remember, "worst crisis since 1929"?), say to the tune of 8%, then we will have to deal with 12.5 million people claiming unemployment benefits. Truly ugly.

So, if the real economy doesn't turn around in the current quarter there will be hell to pay; from a psychological perspective alone, dashed expectations are very powerful negative motivators that will induce people to really go into their shells.

And that's when the Crisis will go into its most virulent, Part Two phase. Just in time for the swine...

What does AmEx want? That's a question American Express cardholders are asking more and more these days as the company turns the screws on long-standing customers and seems determined to show as many as possible the door. Similar moves by leading card issuers drew a scornful response from President Obama, who told industry leaders last week that "the days of any-time, any-reason rate hikes and late-fee traps have to end." But AmEx, which pocketed $3.4 billion in bailout cash from taxpayers, seems to have been especially successful at making customers feel unwelcome.

I wrote Sunday about a Los Angeles man who had his AmEx credit limit slashed twice by the company and then had his card canceled, all because of a "serious delinquency" in his credit file that apparently no one but AmEx could see. I've since heard from numerous others who related similar experiences, including some who said AmEx even demanded that they send in copies of their tax returns if they wanted to keep their accounts -- a notion so outlandish that I was sure it had to be a scam. And demonstrating that AmEx isn't just pushing around middle-class cardholders, I spoke the other day with Beverly Hills resident James B. Davis, who runs a publishing company with about $16 million in annual sales. He said he holds three AmEx Platinum cards, one for personal use and two for business.

Davis, 61, recently received a letter from AmEx saying it was canceling a benefit allowing him to carry an extended balance on certain travel expenses. It said this was due to an unspecified problem with his credit file. "I have no debt -- zero," Davis told me. "So I called up my credit file and went through all 40 pages of it. I kept seeing 'Account in good standing,' 'Account in good standing.' Every account was in good shape." He said he finally found a single instance when he was late with a MasterCard payment -- about three years ago. "I can't believe they were going after me for this," Davis said. "I'm the sort of customer who buys cars on his American Express card." Worse, he said that when he contacted the company to find out what was going on, all he got was a lot of unhelpful mumbo-jumbo from service reps. This is a customer, mind you, whose credit limit runs in the hundreds of thousands of dollars.

Davis' theory, and I think he's on to something, is that AmEx has unleashed some sort of computer program that's combing cardholders' credit files for any problem, no matter how small or outdated. The company is then acting on any such issues to thin the ranks of customers and reduce its exposure to risk at a time when credit card defaults have risen to record levels. I put this theory to Desiree Fish, an AmEx spokeswoman. All she would say was that the company "is trying to manage its risk prudently." She said she couldn't comment on Davis' account but insisted that "if we tell people that there's an action because of a delinquency in their credit file, it's because we've found a delinquency."

I asked about the reports I'd heard of AmEx customers being asked by the company to fax in their income tax returns. This couldn't be a legitimate request, right? Wrong. "In isolated cases, we will request that a card member provide us with additional information, including tax returns, in order to verify the spending capabilities of that card member," Fish said. If a cardholder declines to share such info -- and who wouldn't? -- she said that person's card might be canceled or its use could be suspended until the balance was paid down. "American Express is a brand you can trust," Fish said. "It's not like you're being asked to fax documents to an unknown number. "In no way is this intended to offend anyone," she added. And don't let the door hit you on the way out.

European Central Bank President Jean-Claude Trichet has imposed a vow of silence on Governing Council members as they struggle to agree on what to do next to rescue the economy from recession. Trichet asked council members last week to refrain from commenting on what new measures the ECB will unveil at its next policy meeting on May 7. Austria’s Ewald Nowotny confirmed the ban today, telling reporters in Vienna officials had been asked "in the name of the President not to talk about details before the May meeting." Trichet said on April 27 that council members had agreed "not to give any further indications." The council is divided over how low to cut the benchmark interest rate, currently at 1.25 percent, and what new tools to use to stem Europe’s worst recession since World War II. The discord forced Trichet to cut rates less than economists expected in April and delay a decision on new measures till May.

Germany’s Axel Weber wants to make 1 percent the floor for the benchmark and is against buying debt to pump additional money into the economy, while others such as Athanasios Orphanides of Cyprus don’t want to rule out deeper cuts or the possibility of asset purchases. Nowotny, in an April 8 interview, described asset purchases as "sensible" and said the debate on how low to take the key rate was still open, while agreeing with Weber it shouldn’t drop below 1 percent. Several council members have also said one non- standard measure they favor is offering banks longer-term loans to ease credit tensions. "Council members probably realized that they have to discuss measures first among themselves," said David Milleker, chief economist at Union Investment GmbH in Frankfurt. "They’ve created more confusion than clarity. The entire cacophony didn’t exactly give the picture of a united council in any case."

Since the ECB’s mid-month meeting on April 23, only Executive Board members Lorenzo Bini Smaghi and Juergen Stark have commented on the specifics of possible new measures. The ECB’s traditional "purdah period" starts today. It requires that officials refrain from commenting on monetary policy in the week before a rate-setting meeting. The U.S. Federal Reserve, the Bank of Japan and Bank of England have already lowered lending rates to near zero and are buying government and corporate debt to bolster their economies. The Bank of Canada earlier this month cut its main rate to 0.25 percent and said it plans to leave it there for more than a year. While Trichet has signaled that another quarter-point reduction in the main rate is likely next month, he has declined to comment on what other steps the bank may take.

USA Today reports that in their survey of economists, the median forecast of peak unemployment for the downturn was 9.8 percent. The economists surveyed have consistently underestimated the severity of the downturn as the article notes in pointing out that their median estimate 3 months ago was 8.8 percent. At this point, it is almost impossible envision a scenario where the unemployment rate does not cross 10.0 percent. Since we already know the weekly unemployment filings for the last 6 weeks, it is virtually certain that April unemployment will hit 9.0 percent. The economy is still losing jobs at a rate of close to 700,000 per month. It will not stop losing jobs overnight.

Even if the economy, lost no additional jobs between April and the end of the year, then the unemployment rate would still rise to about 9.5 percent by December. If it loses 1.6 million jobs (200,000 per month), then the unemployment rate will be 10.5 percent by December. At this point, this is probably about as optimistic a scenario as can be believed. It is also worth noting that because the labor force is much older at present than in the early 80's, this implies an unemployment rate that is inflicting far more pain than did the rate at the peak of 1981-82 recession.

Ireland’s unemployment rate climbed to 11.4 per cent in April, from 7.7 per cent at the end of 2008, putting further strain on the public finances. The independent Economic and Social Research Institute think-tank predicted worse to come, forecasting that the jobless number will average 16.8 per cent of the workforce in 2010, the highest rate since the mid 1980s. It estimated unemployment will average 13.2 per cent this year. The Central Statistics Office said the numbers signing on, which includes part time workers, was more than 384,000 in April, up 96.6 per cent on a year earlier. Rising unemployment will add to the social welfare bill. The ESRI predicted this week that Ireland will borrow 12 per cent of national output this year to cover its budget deficit. This is gloomier than the government’s own forecast, which expects the general government deficit will be 10.75 per cent of gross domestic product this year.

The ESRI said the rate would fall to 11.5 per cent in 2010, following the stabilisation measures announced in the budget. However, its forecasts do not include the cost of setting up a bad bank to manage the debts of leading property developers. This is expected to result in large issuance of government bonds to recapitalise the banks, and therefore increased interest payments. The ESRI forecast gross national product – which excludes dividends repatriated by foreign companies based in Ireland – will contract by 9.2 per cent this year, compared with a forecast of negative 4.6 per cent in its December commentary. The think-tank calculates that the Irish economy, the first of the eurozone 16 officially in recession, will see a contraction of 14 per cent over the three years 2008-2010. It said the slowdown was a "truly dramatic development", pointing out it was the largest decline in activity in any industrialised country since the 1930s. This includes the prediction that the pace of contraction will slow in 2010 to 1.1 per cent, although Deirdre Ryan, economist with Goodbody stockbrokers, believes this could prove overly optimistic.

Ilargi: Australia's dollar at a 6-month high while its business outlook is at a record low.

Expectations among Australian companies for the next 12 months have slumped to a record low, suggesting businesses will fire more workers and scale back investment plans. National Australia Bank Ltd.’s gauge of business conditions over the coming year fell to minus 24 in the March quarter from minus 21 in the fourth quarter, the bank’s chief economist Alan Oster said in a statement today. A separate index of business confidence rose to minus 24 from minus 31. Companies such as miners BHP Billiton Ltd. are revising expansion plans and firing workers as the nation’s economy slides into its first recession in two decades. Central bank Governor Glenn Stevens cut the benchmark interest rate to a 49- year low of 3 percent this month to stoke domestic demand.

"Clearly business is expecting further significant deterioration in economic activity," Oster said. "The most concerning aspect of the quarterly survey is the continuing deterioration in both near and especially medium-term expectations." National Australia’s gauge of business expectations for the next 12 months is at the lowest since the bank first began the index in 1988, today’s report said. An index of employment dropped to minus 25, the lowest level since December 1991. There has also been a "significant fall" in hours worked, down 1.9 percent over the last year. "Clearly there are limits on the extent to which hours can be shed and increasingly the focus is likely to move to full- time jobs," Oster said. Australia’s jobless rate jumped in March by the most since 1991, climbing to 5.7 percent from 5.2 percent in February, a report showed on April 9. The number of people employed dropped 34,700.

Australia’s currency rose to the highest level in more than six months against the greenback as growth in Japanese manufacturing and U.S. consumer confidence spurred optimism the global recession will ease. The Australian currency headed for its third straight month of gains as Asian stocks climbed, pushing the region’s benchmark equity index towards its best month in more than a decade. New Zealand’s dollar pared declines after dropping earlier when the central bank cut borrowing costs to a record and said the benchmark will stay low until late 2010. “With stock markets going up so strongly, risk is back on,” said Tony Morriss, a senior markets strategist at Australia & New Zealand Banking Group Ltd. in Sydney. “The U.S. dollar is coming under pressure.” The Australian dollar jumped 1 percent to 73.41 U.S. cents as of 5:17 p.m. in Sydney and touched 73.57 cents, the strongest since Oct. 6. It advanced to 71.73 yen from 71 yen. New Zealand’s dollar was little changed at 57.27 U.S. from 57.30 cents in New York yesterday, after dropping as much as 1.7 percent following the rate-cut decision. It bought 55.91 yen from 55.98 yen.

Australia’s dollar advanced above its 200-day moving average and may now climb toward 74.80 U.S. cents, Morriss said. Australia’s currency advanced as Asian stocks extended yesterday’s gains with the region’s benchmark MSCI Asia Pacific Index poised for its best month since October 1998. The Australian dollar is set to rise 6.2 percent this month, paring its losses over the past 12 months to 22 percent against the dollar. The currency has risen 4.7 percent versus the yen tempering the past year’s decline to 27 percent. The Aussie rebounded as President Barack Obama said he is “hopeful” that Chrysler will come up with a solution that will let a merger with Italian automaker Fiat SpA go through and keep the U.S. company in business. The Federal Reserve yesterday signaled that the worst of the recession may be over in the world’s largest economy saying its “contraction appears to be somewhat slower.”

Industrial output in Japan, Australia’s largest export market, rose for the first time in six months, increasing at twice the pace predicted by economists. Australian loans provided by banks and other finance companies climbed 0.1 percent in March, the Reserve Bank of Australia said in Sydney today. The median estimate of 18 economists surveyed by Bloomberg News was for a 0.3 percent rise. “We may have seen the worst of this crisis even though the outlook remains pretty dour,” ANZ’s Morris said. The South Pacific currencies will rebound as investor optimism recovers, BNP Paribas SA said. New Zealand’s dollar may advance to 61.55 U.S. cents and then 62.70 cents, the bank said in a research note, without indicating a timeframe. Australia’s currency will gain toward 74.45 U.S. cents, the highest since Oct. 6, BNP said.

New Zealand’s dollar earlier dropped after central bank governor Alan Bollard cut the overnight cash rate by half a percentage point to 2.5 percent, saying borrowing costs may go lower. This was “a huge reaction on a huge statement” by the Reserve Bank, said Imre Speizer, a market strategist in Wellington at Westpac Banking Corp. “The yield support for the kiwi has evaporated even more after today, which should be a medium-term drag.” Bollard lowered rates by 5.75 percentage points since July to counter the nation’s worst recession in more than three decades. New Zealand swap rates dropped by the most this month. The fixed payment made to receive two-year floating rates slid to 3.36 percent, the lowest since March 12, from 3.66 percent yesterday. “It is likely to be some time before economic activity returns to robust and healthy levels,” Bollard said in a statement released in Wellington. “The rate could still move modestly lower over the coming quarters.”

The New Zealand dollar, which has risen 2.3 percent this month, is the worst performer against the greenback over the past year among the 16 major currencies, tumbling 27 percent. It has gained 1 percent versus the yen this month paring the year’s decline to 31 percent. The currency may fall toward 54.50 U.S. cents within the next two weeks, “with a bias to going further down,” Speizer said. Higher interest rates in New Zealand and Australia, compared to 0.1 percent in Japan and as low as zero in the U.S. attract investors to the nations’ assets. Australia’s central bank probably will maintain benchmark borrowing costs at a 49- year low of 3 percent when policy makers meet May 5, according to a Bloomberg News survey. Government bonds in Australia were little changed with the yield on 10-year notes at 4.57 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 fell 0.03, or A$0.30 per A$1,000 face amount, to 105.35.

A massive natural-gas discovery here in northern Louisiana heralds a big shift in the nation's energy landscape. After an era of declining production, the U.S. is now swimming in natural gas. Even conservative estimates suggest the Louisiana discovery -- known as the Haynesville Shale, for the dense rock formation that contains the gas -- could hold some 200 trillion cubic feet of natural gas. That's the equivalent of 33 billion barrels of oil, or 18 years' worth of current U.S. oil production. Some industry executives think the field could be several times that size. "There's no dry hole here," says Joan Dunlap, vice president of Petrohawk Energy Corp., standing beside a drilling rig near a former Shreveport amusement park.

Huge new fields also have been found in Texas, Arkansas and Pennsylvania. One industry-backed study estimates the U.S. has more than 2,200 trillion cubic feet of gas waiting to be pumped, enough to satisfy nearly 100 years of current U.S. natural-gas demand. The discoveries have spurred energy experts and policy makers to start looking to natural gas in their pursuit of a wide range of goals: easing the impact of energy-price spikes, reducing dependence on foreign oil, lowering "greenhouse gas" emissions and speeding the transition to renewable fuels. A climate-change bill being pushed by President Barack Obama could boost reliance on natural gas. The bill, which could emerge from the House Energy and Commerce Committee in May, is expected to set aggressive targets for reducing emissions of carbon dioxide, the most prevalent man-made greenhouse gas.

Meeting such goals would require quickly moving away from coal-fired power plants, which account for substantial carbon emissions. President Obama wants the U.S. to rely more on renewable energy such as wind and solar power, but those technologies aren't ready to shoulder more than a fraction of the nation's energy burden. Advocates for natural gas argue that the fuel, which is cleaner than coal, would be a logical quick fix. In addition, billionaire energy investor T. Boone Pickens has been touting natural gas as an alternative to gasoline and diesel for cars and trucks. "The availability of natural-gas generation enables us to be much more courageous in charting a transition to a low-carbon economy," says Jason Grumet, executive director of the National Commission on Energy Policy, who was a senior adviser to President Obama during the campaign.

Just three years ago, the conventional wisdom was that U.S. natural-gas production was facing permanent decline. U.S. policy makers were resigned to the idea that the country would have to rely more on foreign imports to supply the fuel that heats half of American homes, generates one-fifth of the nation's electricity, and is a key component in plastics, chemicals and fertilizer. But new technologies and a drilling boom have helped production rise 11% in the past two years. Now there's a glut, which has driven prices down to a six-year low and prompted producers to temporarily cut back drilling and search for new demand. The natural-gas discoveries come as oil has become harder to find and more expensive to produce. The U.S. is increasingly reliant on supplies imported from the Middle East and other politically unstable regions. In contrast, 98% of the natural gas consumed in the U.S. is produced in North America.

Coal remains plentiful in the U.S., but is likely to face new restrictions. To produce the same amount of energy, burning gas emits about half as much carbon dioxide as burning coal. Natural gas has never played more than a supporting role in the nation's energy supply. Crude oil, refined into gasoline or diesel, fuels nearly all U.S. cars or trucks. Coal is the dominant fuel for generating electricity. Natural-gas production in the U.S. peaked in the early 1970s, then fell for a decade due to weak prices and declining gas fields in Texas, Louisiana and elsewhere. Production bounced back in the 1990s with the discovery of new fields in New Mexico and Wyoming, but by 2002, output was falling again -- this time, most experts thought, for good. Believing the U.S. would soon need to import liquefied natural gas from overseas, companies such as ConocoPhillips, El Paso Corp. and Cheniere Energy Inc. spent billions on terminals, pipelines and storage facilities.

The supply fears drove up prices, which spurred innovation. Oil-and-gas companies had known for decades that there was gas trapped in shale, a nonporous rock common in much of the U.S. but considered too dense to produce much gas. In the 1980s, Texas oilman George Mitchell began trying to produce gas from a formation near Fort Worth, Texas, known as the Barnett Shale. He pumped millions of gallons of water at high pressure down the well, cracking open the rock and allowing gas to flow to the surface. Oklahoma City-based Devon Energy Corp. bought Mr. Mitchell's company in 2002. It combined his methods with a technique for drilling straight down to gas-bearing rock, then turning horizontally to stay within the formation. Devon's first horizontal wells produced about three times as much gas as traditional vertical wells. The development of the Barnett Shale almost single-handedly reversed the decline in U.S. natural-gas production. Last year, the Barnett produced four billion cubic feet of gas a day, making it the largest field in the U.S. Other companies such as Newfield Exploration Co., Southwestern Energy Co. and Range Resources Corp. found shale fields across the U.S.

One of the most aggressive companies was Oklahoma City-based Chesapeake Energy Corp., which got into the Barnett a couple of years behind cross-town rival Devon, and was an early entrant into the second big U.S. field, the Fayetteville Shale in Arkansas. In 2005, Chesapeake Chief Executive Aubrey McClendon sent teams of geologists across the country with a mission: Find the next Barnett. Less than two years later, they told him they had it, in Louisiana. The Haynesville Shale is centered in northern Louisiana, one of the country's oldest oil- and gas-producing regions. Wildcatters had explored beneath the lush cow pastures and cotton fields as far back as the 1870s. Shreveport, the region's largest city, saw decades of booms and busts until the 1980s, when a glut of cheap oil from overseas all but killed the region's oil industry. Oil companies knew about the Haynesville Shale, but it was considered a less viable prospect than the Barnett. The shale lies 10,000 or more feet below ground, where high pressure and 300-degree temperatures are enough to fry high-tech drilling equipment.

But in 2006, Chesapeake drilled an exploratory well and decided the results were promising enough to justify the higher cost of drilling in such harsh conditions. By late 2007, Mr. McClendon says, "we knew that we had a tiger by the tail." In March 2008, as oil and gas prices were soaring, Chesapeake went public with its findings. The rush was on: Dozens of companies dispatched agents to the area to lease land for drilling, turning farmers and ranchers into millionaires overnight. "There was excitement in the air," recalls Jeffrey Wellborn, a Shreveport resident who sits on the board of the local Sierra Club. "You thought everyone in the world had won the lottery." The frenzy marked the peak of a nationwide drilling boom that was fueled by a combination of soaring energy prices and easy credit. It didn't last. Between July and October, oil and gas prices fell by more than 50%, and kept falling. The weakening economy eroded demand for both oil and gas. Natural gas, unlike oil, suffered from a supply glut. U.S. gas production rose 7.2% last year, while oil production fell 1.9%. As a result, oil prices are up 12% since the start of 2009. Natural-gas prices have fallen 41% to their lowest since 2002.

Gas producers saw their profits evaporate and share prices slump. Liquefied-natural-gas imports plunged, leaving import terminals nearly idle. Worried about a glut, companies cut back sharply on drilling and formed a lobbying group to try to boost demand. The growing supply created opportunities for policy makers and environmentalists, who saw natural gas as a possible solution to the nation's energy problems. Some groups suggested burning more gas and less coal for power generation. Others favor its use in vehicles. Mr. Pickens has spent millions promoting an energy plan that aims to, among other things, convert thousands of big-rig trucks to run on natural gas. Mr. Pickens has large investments in natural gas and stands to benefit if his plan is adopted. In TV ads, Internet videos and speeches, he emphasizes a different goal: reducing U.S. dependence on foreign oil. Mr. Pickens arrived for a recent speech in Dallas in a natural-gas-fueled Honda Civic with a bright blue "Pickens Plan" logo. He told a packed auditorium that the U.S. is importing two-thirds of its oil even as the country is "absolutely overwhelmed with natural gas." If the reverse were true, he said, he would favor burning oil.

Some environmentalists have embraced Mr. Pickens's plan as a way to fight climate change. Carl Pope, executive director of the Sierra Club, says he sees natural gas as a "bridge fuel" that could help the U.S. burn less coal and oil until renewable sources of energy are ready to take over. The dual message of energy security and environmental responsibility has helped Mr. Pickens win powerful allies, including Senate Majority Leader Harry Reid, House Speaker Nancy Pelosi and dozens of elected officials from both parties. A bipartisan bill providing tax incentives for natural-gas cars looks likely to pass this year. Not everyone shares Mr. Pickens's enthusiasm for natural-gas vehicles. Major users of natural gas, such as utilities and chemicals companies, are concerned the plan would drive up prices -- an outcome that would benefit producers. Energy Secretary Steven Chu and some other policy makers have expressed doubts about the practicality of retrofitting hundreds of thousands of service stations to offer natural gas. Some environmental groups, including the Natural Resources Defense Council, have argued that natural gas is better used to replace coal for power generation, and that cars should run on electricity generated by the sun, wind and natural gas.

Market forces are already helping natural gas make inroads against coal and oil. Gas is now cheaper than coal in many parts of the country, leading utilities to burn more gas. Of the 372 power plants expected to be built in the U.S. over the next three years, 206 will be fired by gas and just 31 by coal, according to the Energy Information Administration. Natural gas is gaining market share far more slowly in transportation. Earlier this year, AT&T announced it would convert up to 20% of its truck fleet to run on natural gas, largely because it has been cheaper than gasoline in recent years. Cities including New York, Los Angeles and Atlanta have converted part of their bus fleets to run on natural gas, for air-quality reasons. Shreveport could be the next city to make the switch. In March, Mayor Cedric Glover announced that the oil capital turned natural-gas boomtown would abandon diesel and convert its bus fleet to natural gas.

Significant intervention in the banking system and economy with the ’strong dollar policy’ and various forms of government credit and subsidies has paid some of us extraordinary amounts of money to do things that lower the total economic return of our overall society. We profit from debt bubbles, speculation and looting, rather from hard work, saving and investment. This intervention, highly profitable for those leading global economic warfare, has created privileges and expectations that are often not rational when viewed from an integrated economic whole. Not surprisingly, extraordinary gapping in the perceptions of Main Street v. Wall Street and Washington are growing as bankers who implemented the "pump" are now being "dumped." How these groups come into alignment as the economy adjusts will be a fascinating process to watch.

One of the more interesting polls I read this week was "Economic Crunch Time" in Men’s Health. Their poll of 758 men found that 9% said that the worst white-collar crimes were more serious than murder, 70% said they were as serious as murder and 21% said that they were less serious than murder. How are we going to reconcile those attitudes with those of wealthy Wall Street? In Gabriel Sherman’s article in New York Magazine, "The Wail of the 1%: As the privileged class loses its privileges, a collective moan rises from the canyons of Wall Street," a Citigroup executive is quoted:

"No offense to Middle America, but if someone went to Columbia or Wharton, [even if] their company is a fumbling, mismanaged bank, why should they all of a sudden be paid the same as the guy down the block who delivers restaurant supplies for Sysco out of a huge, shiny truck?" e-mails an irate Citigroup executive to a colleague."

I have a Wharton MBA, am a former member of the Wharton Graduate School Advisory Board and am the grandchild of a former Dean of Wharton. I would respond to the Citigroup executive quoted above that deliveries of restaurant supplies have a positive total economic return to society as a whole, whereas Citigroup has a negative total economic return, including a negative return to investors. Hence, on a sustainable basis, we should be paying the delivery guy more than the Citigroup executive, irregardless of where he or she went to school. In a nutshell, the delivery guy adds more value.

Given the debt and derivative overhang on the US and global economy, Wall Street compensation may have a ways to fall. Even if our naval, space and intelligence supremacy succeeds in keeping the dollar functioning as the world reserve currency, why would we be willing to pay someone at Citigroup many multiples what we pay the engineers who make the weapons or the agents who implement the torture and terror that makes an empire and its currency go? This is a good question as the Secretary of Treasury contemplates special provisions so Citigroup commodities traders can continue to make $100 million.

How do we get everyone relating their contribution to our total economic return with how well we each do individually? This is pretty basic economics. If we all generate income and equity by doing things that build up our economy and the health of our environment, then the world could be a pretty nice place. If we all make money doing things that steal from others or wreck the economy and the environment, how is that supposed to work? This is not an issue that ultimately pits Main Street vs Wall Street. The problem is throughout our economy. We need all the talent available engaged in transforming to a system that encourages each of us to build real wealth and compensates us for doing so. Truly, there is no more important conversation in the economic sphere than this.

JOAN JULIET BUCK: You must be having some very intense reactions to everything that’s happening right now.NAOMI KLEIN: It’s an adventure reading the paper every morning.

JOAN: Where does that leave the end of history?NAOMI: So many of the debates that we were told are over are reemerging. That’s the good part of what’s going on right now. There were so many attempts to arbitrarily claim that ideas about social justice, about economic justice, were finished, and there’s only one model. In The Shock Doctrine I quote Larry Summers, from back in 1991 when he was a honcho at the World Bank. He was talking about the World Bank policies that used to be called The Washington Consensus. And he said, "Spread the truth — the laws of economics are like the laws of engineering. One set of laws works everywhere." It was all about deregulation, privatization, the market is always best, the market’s always supreme. And there was the feeling of certainty — that we had figured everything out. Summers even said a couple of years later that there are many basic economic ideas that are "passé" — no longer worthy of debate. One of the issues that he listed as over was the idea that government could invest in programs to stimulate the economy. And here he is … right!

JOAN: What does the present moment mean?NAOMI: It’s created space; there’s new oxygen to propose alternatives. One of the things that I try to show in my book is that these debates were not won on their own merits. They were often won using violence, by actually eliminating the left, in countries in Latin America, and then declaring ideological victory.

JOAN: In The New Yorker, you’re quoted as saying, "This is a progressive moment. It’s ours to lose." What did you mean?NAOMI: Capitalism is on trial. And you have an organic, grassroots, sort of spontaneous revolt against the elite – which is actually what we’re hearing with this rage at CEOs, and bonuses and government collusion with the elites. Rage is an opportunity. The rage is there, and the country is seething, the world is seething with rage. The question is, where is it going to be directed? I feel there’s a moral responsibility for the Left and for progressives to provide an alternative in this moment that is moral, that is principled, that is just, that is hopeful, because if we don’t, then that anger is so easily directed at "those damn Mexican immigrants," at "the first African American president." So I feel a tremendous sense of urgency. It’s not just, "Hey, our time has come." It’s, "We’d better get our act together because this anger is going somewhere."

JOAN: Now, who would the leaders of this Left be?NAOMI: That is a very complicated question in the United States right now. Pretty much everywhere else in the world, besides maybe North Korea, there’s a really healthy distrust of those in power. You know, people are in the streets in this moment, as well they should be – whether it’s in France or whether it’s in Britain or Iceland. They may have a left-leaning government, like the government of Gordon Brown. But that doesn’t mean they’re giving him a pass. In Britain the choice is very clear. The anger is either going to be directed at the banks or it’s going to be directed at immigrants. I’m not afraid of it being directed at the banks. I’m appalled at news that there’s a 17-year-old girl who is facing jail time for having a few beers and breaking a window at the RBS Bank during the G-20 protests, when not a single banker is going to jail for burning down the global economy. What kind of a system is that? I think we should rally to this young woman’s defense. What you see again and again in Europe is that, in this critical moment, there is an opposition that is organizing with this healthy distrust of power. In the U.S., Obama mania complicates this.

JOAN: You said, talking about the Obama video "Yes We Can," "Now, finally, a politician is making ads that are as good as Nike."NAOMI: In the ‘90s I wrote a lot about branding and how corporations were tapping into the deeply human need to be part of something bigger than just consumerism. "We’re not just selling sneakers. We’re not just selling laptops. We’re selling transcendence and a connection and community." That trend actually made me feel hopeful that, actually, we don’t just want things, and all of this expensive market research was telling Microsoft and Starbucks and Nike that what we actually want is to be part of something larger. Even though I thought the phenomenon was culturally insidious, I felt, in many ways, the same sense of responsibility. Like, hey, they’ve done our market research for us, but they’re actually not offering community and political engagement. They’re offering lattes and laptops and running shoes. So it’s actually up to progressive movements to provide the real deal. I do believe that the Yes We Can movement started pretty empty, and it was really tapping into just the deep shame of the Bush years and the desire for something different, and using these very creative marketing techniques where you’re able to project your own longings onto this blank slate.

JOAN: And can Obama provide the real deal? NAOMI: What gave me hope was that when the economic crisis hit, Obama got serious and his analysis became more concrete. It’s really worth remembering that he started winning the election when Lehman collapsed and he started putting the ideology of Reaganism on trial. He started saying, "This economic crisis is the result of the policies of deregulation and trickle-down economics that have dominated this country." But he said, "for the last eight years." That was wrong. And that was part of the problem.

JOAN: Because it’s the last 30.NAOMI: It’s the last 30 and, you know, that was a piece of intellectual dishonesty that I think has cost us dearly. That was a good electoral line because we all wanted to be able to blame it all on Republicans, because that was a much more sellable election slogan. "Everything was fine in the ‘90s when you had Clinton and we just need to get back to that." And what that did was gloss over the absolutely central role that Robert Rubin and Larry Summers played in creating this crisis. And lo and behold, they’re back with their protégés in tow. There’s really a shared responsibility, and it’s an argument for more intellectual honesty, more principled stands and fewer strategic calculations. What worries me so much is that it’s fine for politicians to be strategic. But social movements should be principled. They shouldn’t always be thinking about what’s the right strategy, what’s the sellable message, what’s the talking point, because then you end up in a situation like this. Larry Summers is back. Larry Summers was given a pass during the entire election.

JOAN: Is it effective what Obama’s doing? What do you think of it?NAOMI: If you mean the bank bailout, I think it’s a disaster, crony capitalism at the absolute worst. I think the timing of the release of Larry Summers’s financial records from last year is really interesting. He worked at a hedge fund one day a week and was paid $5.2 million. He was paid $135,000 for one speech to one of the bailed-out banks. And when he got the post he was presented as an egghead academic, as if he wasn’t coming from Wall Street. In fact he wasn’t just working for one bank; he was working for all of them. He collected $8 million in these fees in one year. The question people have been asking about the bank bailout is, "Why is this happening?" And I think part of the answer is that in the United States, there’s so much mythology around the purity of American intentions. There’s always this desire to blame incompetence as opposed to greed. But sometimes things are just what they look like.

NAOMI: Larry Summers and Tim Geithner came up with a plan to bail out the banks that is actually a disguised bailout for the hedge funds — where the government is not bailing out the hedge funds directly because they can’t sell that, but hedging the hedge funds to buy the toxic assets of the banks — instead of nationalizing the banks and breaking them up, which is what needs to happen. This is very different from what FDR had the guts to do. He used that progressive movement, he used the rage at the banks, to pass Glass-Steagall. And there’s no excuse for the fact that there’s been no serious re-regulation of the financial sector. The idea that you would somehow hand out trillions of dollars to the banks and then regulate them months later is crazy. You have the leverage when you’re handing out the money. "You say you want a bailout? Well here are the new rules." And somehow we’re supposed to believe that the plan is to hand out trillions of dollars to the banks, and then later, once they’ve taken and spent the money, impose new rules. That’s the stupidest plan I’ve ever heard in my life. And I don’t believe these guys are dumb. I think they’re corrupt.

JOAN: Which guys?NAOMI: Summers. Geithner. It may be legal corruption but I still consider it corrupt. Wall Street funded Obama’s campaign. They funded his Inauguration. They paid huge speaking and consulting fees to some of his closest advisers. What I am calling corruption is better understood as "crony capitalism." It’s the systematic trading of favors between corporate and political elites to secure wealth and power. And the truth is, most of the time the trading of favors doesn’t even need to be explicit. It’s more that this corporate-political nexus creates an impenetrable culture in Washington, so the hedge-fund managers and bank CEOs are the ones who are in the ears of the Washington policy makers — they are their constituency, their community, the ones saying whether or not a given policy will work. And, of course, the problem is that the voices of regular people are left out.

JOAN: Why is my perception that Obama was funded by the tiny donations?NAOMI: Because both are true. His campaign was historic in the number of small donations and the grassroots campaigning that brought him to office. But it was also historic in the levels of Wall Street financing. The grassroots movement that brought Obama to power needs to understand that the fight is on, that Wall Street is pushing Obama hard behind the scenes because they feel they have a claim to him. And the appointment of Summers and Geithner were all messages to Wall Street – "Don’t worry, things are not going to change too much." And the market cheered. For the people who sent the $100 donations and volunteered their time for the Obama campaign, the only way to respond to this is to push hard from the other direction. Because the dynamic where Obama’s grassroots support just cheers him and defends anything he does, while the Wall Street heavy hitters and the defense companies take the gloves and lobby hard for their agenda does not work. The grassroots will lose that battle because they aren’t actually fighting. What they’re saying to Obama is, "You can take us for granted."

NAOMI: I’m not saying Obama is corrupt. But I’m saying that, so far, what he has actually done is go to great lengths to reassure Wall Street and it’s very much a top-down recovery model, which is the opposite of what he campaigned on. He campaigned on the idea of a bottom-up recovery. Reinvesting in Main Street, reinvesting in manufacturing. That can happen, but only if we demand it, because in Washington the momentum for the status quo is so tremendous. That’s the problem with the bailout. His stimulus package has some very, very good things in it. The news is not all bad. But the problem is that the bank bailout is so bad that it practically cancels everything else out, in the sense that taxpayers have taken on so much risk, so much debt in the interest of bailing out the banks, that they’ve created a crisis down the road which will then be used to justify cutting social security, cutting health care and not making good on those promises. That’s the real concern.

JOAN: You really think that’s going to happen?NAOMI: I really believe that this bailout is not a bailout for the economy. The best writing about this has been done by Joseph Stiglitz, Paul Krugman, Jeffrey Sachs. These are very, very respected economists. Two of them with Nobel prizes. What’s really shocking to me is that they’re in the position of criticizing from the sidelines, as opposed to being in the administration. This administration is trapped in the kind of thinking that created the crisis and I think it should be just gloves-off criticism on this, because it’s very, very serious. It’s very serious that Joseph Stiglitz has not been invited to play a pivotal role in the administration, that Paul Krugman is seen as too extreme. That’s why Summers matters, because Summers is the gatekeeper. Summers appears to be keeping people away from Obama. He’s defining the terms of the debate, and they are outrageously narrow. I think we should take Stiglitz and Krugman and Sachs at their word on the bailout: It’s worse than we thought. The debts that these banks hold are enough to swallow the country’s entire GDP and then some, if we keep throwing money into that black hole. It happened in Iceland. We just saw a national economy be wiped out by the debts accumulated by private banks.

JOAN: Just start with the Icelandic protests. Why are there no protests in the streets in America?NAOMI: This comes back to the problems of hero worship. It’s hard to protest your hero. But it’s more than that. It’s also that the virulence of the Right in the United States is so frightening and the problem is that it is the merger of the extreme far right and large corporations, in the form of media conglomerates. So Glenn Beck on Fox or Lou Dobbs on CNN have these unbelievable megaphones to attack Obama, and to spread fear, which makes reasonable people feel that their main political role is to defend the Obama administration against this very frightening right-wing onslaught. It’s understandable but it’s also hard to do that while being in the streets protesting that administration’s bailout – which is what’s happening in Britain, which is what’s happening in France, what’s happening in Italy. I think the problem in the U.S. is that many people who were part of the campaign to get Obama into power now see their role as being kind of an unofficial arm of the administration, with some groups even taking talking points from the White House. It’s a recipe for political failure, because what actually makes space for Obama to do more of what we want him to do is to make him look less radical, by being more radical ourselves.

JOAN: A very good point.NAOMI: And that’s actually doing him a favor. That’s how political victories were won in the ‘30s and ‘40s, and it’s really the only route. Another obstacle we face are these wild theories about what Obama’s actually planning to do. During the campaign people forgave a lot that they disagreed with by saying, "Well, you know, he has to say that in order to get elected." Or, "When he gets the power he’s going to change his position," which I think is really problematic for progressives, because what you’re actually doing is hoping he’s lying. And we actually want politicians to tell the truth so that we can hold them to their promises on the campaign trail.

JOAN: And now?NAOMI: Now you have this new level of theorizing where people think maybe Obama’s strategy is to try the free-market bailout model. You know, bailing out the banks, letting them stay private, doing this hedge-fund bailout, so that he can show that it failed, so that he can then do what he really wants to do.

JOAN: Machiavelli.NAOMI: Yeah, except for one problem: There’s not going to be any money left for the second stage of this supposedly ingenious plan. The bottom line is that we need to get out of trying to imagine what Obama might be thinking and all of his strategizing, and just stand on principle and make principled demands. I do have enough faith in Obama to believe that if he is faced with a mobilized population making clear, principled, radical demands, he will broker a pretty good compromise. But he’s not going to do it while he is just being cheered by his supporters.

JOAN: Given that many people consider that this moment is exposing the fundamental flaws of capitalism, is it a moment for a radical rethinking of capitalism, of economics, of the markets? For a whole new model?NAOMI: I do think that. I do. That’s both the fear and the promise of this moment. Here’s something else that I thought was really exciting about the protest in London during the G-20 Summit: Most of those activists came out of the environmental movement. They were making connections between the financial crisis and the ecological crisis, the logic of "there’s no tomorrow," and short-term thinking that underlies both the financial crisis and the climate crisis, and the perpetual-motion machine of economic growth above all else.

It is a real crisis that we’re facing and it goes well beyond the financial markets. The frightening part of this political moment has been watching how the crisis in the financial sector has just swept all of these other issues aside. Do we ever hear about the food crisis? Do we think it’s solved? Do we ever hear about the AIDS pandemic or are we talking about climate change anymore? It can go either way. This crisis can swallow us up in every way. The financial crisis can be the only thing we talk about. It can drink up all of our collective resources. On the other hand it does provide this opportunity because the failures of the economic logic are so clear. When you start making those connections and talking about solutions that are multitasking solutions that address the financial crisis, AND the climate crisis AND the health-care crisis, then people start getting really inspired. So much of what has paralyzed progressive movements over the past 20, 30 years has been this idea of a shrug from government. We can’t do anything collectively. Yeah, sure, that’s a big problem, but we have to leave things to the market, and government isn’t very good at doing anything. That notion of collective impotence has also shattered, along with so many of the other myths.

NAOMI (CONT’D): We’re seeing such incredible government effort that’s being marshaled in order to save the financial system. There’s a sense of possibility about anything right now. Why can’t we have universal health care? Why can’t we have an incredible mass-transit system across the country? You never know what this generation’s going to do with that, because they are not afflicted with what my generation was afflicted with, which was just total indoctrination and Reaganism and this idea that we can’t do anything collectively. That’s also what’s hopeful about what Obama unleashed in his campaign. People felt the tremendous sense of common purpose. And also they got a victory.

JOAN: They did.NAOMI: When people start winning things, it can go either way. People can just get disillusioned and go, "Well I thought Obama was going to fix everything, and he didn’t. And now I’m never going to do anything ever again. I’m now officially cynical at, you know, 23." Or, it can be, "Wait a minute. We’ve made history electing this guy who everyone said couldn’t get elected and let’s go make some more history."

JOAN: Now, a little question about the whole idea of progressive movements that, of course, come out of our parents’ generation and are fueled by Communist ideals — and Communism in our lifetime was revealed to be an unworkable model. So you’re saying the only basis for progressive movements is justice itself?NAOMI: Well, justice, democracy and also any major new progressive movement is going to have ecology at its very center, which necessarily questions the fundamentals of capitalism, which is based on endless growth. Young people understand that much better than we do, just in their bones — a sense of a feeling of real ecological limits. That, to me, was what was so insidious about the role that Sarah Palin played in the campaign — at this moment, when we’re suddenly, collectively getting in touch with the reality that the resources of the planet are not limitless, that we have a deep challenge to the American dream, to the frontier myth, which is the myth of abundance and wide-open spaces. And just when we’re starting to come to grips with the reality that we have to live within our means, along comes Sarah Palin who says, "Come up to Alaska. It’s the final frontier. We’ve got enough oil and gas and resources to fuel your way of life forever and ever. Drill, baby, drill." I think it was such an extraordinary moment, the Republican convention of, "No, we don’t have to think about tomorrow."

JOAN: Right.NAOMI: That aspect of the role that Sarah Palin played in revising the myth of the frontier hasn’t really been examined enough. What I try to show in the Shock Doctrine is that capitalism and its various spokespeople have always tried to create a false duality between free markets and free people on the one hand, and Communism and enslaved people on the other, as if those are the only two choices available to us. We see that even in the way that the Glenn Becks and the Sean Hannitys and the Bill O’Reillys are immediately casting Obama as a Communist for extremely moderate Keynesian policies. It serves them to pretend there is nothing between extremist market fundamentalism and Communism, to erase everything in the middle.

NAOMI (CONT’D): In tracking the history of this very dangerous right-wing ideology, what was so striking to me was that it was always more dangerous to these right-wing ideologues to have democratic socialism or Scandinavian-style social democracy, rather than iron-rule, Soviet-style totalitarianism. That’s an easy enemy. That’s fun. The Cold War was fun. What is much more challenging for the Right is when people start experimenting with combinations of democracy, socialism and markets. For instance, in Poland, the first Eastern-bloc country to have elections, the party that came to power was Solidarity. And Solidarity’s vision for an alternative was not Reaganism. It was the idea that the factories could be turned into workers’ co-ops. This was Upton Sinclair’s idea in 1934 when he ran for governor of California — all of these abandoned farmlands and factories that are closing should be given to workers to run democratically. And in the rare places where they have been tried — these are the so-called "third ways" — they usually turn out to be some of the best places in the world to live, like the Scandinavian countries, or parts of Northern Italy where you have a large portion of the economy run by co-ops.

JOAN: When I read The Shock Doctrine I got so angry. Has that feeling of frustration that you communicate, of frustration and horror, has that abated a bit for you, or is it worse?NAOMI: It hasn’t abated. What enrages me more than anything is impunity. I am in a state of rage about the impunity of the elites at the moment. I’m very disturbed by this idea that we just have to keep looking forward, we can’t look backward. That is a declaration in favor of legal impunity for the elites, whether we’re talking about torture, whether we’re talking about the financial crimes that created this crisis, whether we’re talking about what happened under TARP and the first $700 billion. Elizabeth Warren has done such a fantastic job and has raised some very, very deep legal issues about what happened with that money, and there seems to be no desire to prosecute. This brings us back to that 17-year-old girl who broke a window. You can’t have a society where the elites enjoy this flagrant impunity and expect people to respect the rule of law.

That’s why I dwell on Summers. I think that somebody who played a key role in pushing shock therapy economic policy on Russia in the ‘90s, when 72 million people were thrown into poverty, should not be declared a genius. I’ve really been struck recently by the fact that this is such a boys’ club that we’re talking about. Men get sort of deified and their intelligence inflated beyond all reason and evidence — the "maestro" Alan Greenspan and the "oracle" Larry Summers, as he was recently declared in The New Republic — really projecting onto these guys otherworldly intelligence, otherworldly powers. And I’m calling this the "brain bubble" because I actually think it’s more dangerous than the real-estate bubble, and I think it’s more dangerous than the subprime mortgage crisis.

JOAN: It infantilizes the watcher.NAOMI: It infantilizes all of us because these men are just too smart for us, so that we just have to trust them, no matter how spectacularly and repeatedly wrong they have been. I’ve also been struck by how spectacularly right a few key women have been in this process, and, interestingly, women never get the "brain bubble" treatment.

JOAN: OK, who?NAOMI: Brooksley Born [chairwoman of the Commodity Futures Trading Commission], who, during the Clinton administration, blew the whistle on the unregulated derivative industry and wanted to regulate it like any other banking sector. For her prescience she was bullied by Rubin and Greenspan and Summers, who’s actually the enforcer of the three. He was the one who called her. They argued that just by talking about the need to regulate derivatives, she was going to create market panic. So not only wouldn’t they consider it, they wouldn’t even let her talk about it. She saw this whole crisis coming. You often hear this: "Well, no one saw this coming." And that is such a reflection on who these men believe is someone. But there are so many people who saw this coming, and they’re considered nobodies. The only way you get to be a somebody is if you agree with them. Brooksley Born saw it coming. Elizabeth Warren has been an incredible watchdog. Sheila Bair, chair of the FDIC, also had a much more principled and ethical vision of what the bailout should be, in arguing that they should be offering direct aid to homeowners, as opposed to this top-down bailout. I feel like this gender split is not coincidental. There’s a need for more of a feminist analysis in understanding how we got here.

JOAN: As a child you rejected feminism, which your mother supported. What was it about feminism that you initially found so distasteful?NAOMI: I think it was a combination of just basic boring teenage rebellion and, really, these basic, aesthetic objections.

JOAN: Hairy legs?NAOMI: Yes. And it’s not that my mom was hardcore in that way, but I didn’t like being policed in any way. I rejected feminism as something that I felt was getting in my way of, you know, wanting to wear what I wanted to wear and do what I wanted to do. I really didn’t like the idea that it would be assumed that I would agree with my parents. It was a combination of just wanting to wear tight jeans and also just not wanting to be bossed around. I was a bit of a brat about it.But when I was in first-year university at University of Toronto, there was a terrible crime against women that is really not known about outside of Canada. It was a massacre at the University of Montreal, the city where I was born and in which I grew up. A gunman went into an engineering school. At that time there were big debates about why there aren’t more women in engineering and in the hard sciences. And there were people arguing that it’s because women lack the certain intrinsic ability. As an aside, that’s what Larry Summers suggested when he was president of Harvard, which got him in so much trouble. There were other people who were arguing that it was the culture of the schools themselves, and that there needed to be more of an effort to bring women into the sciences. And affirmative action was being practiced at the engineering schools. The vitriol around this was so strong that this gunman, Mark Lepine, got it into his head that he had not gotten into this school because of feminists. He went to an engineering classroom at the University of Montreal and separated the men from the women. He turned to the women and said, "You’re all a bunch of fucking feminists," and gunned them down. Fourteen women were killed. So it was a crime against women, a crime against feminism.

JOAN: You did a lot of feminist activism starting then, right?NAOMI: Yes, right away. Because I had grown up with it, it was a bit like, "Oh, I know how to do this," even though I had always rejected it. The connection between the way that this was being reported on in the media and the way this twisted man incorporated it in his mind was so clear that a whole generation of feminists was created in that moment. The media kept saying, "He’s just a madman. It’s not a crime against women. It’s not about politics." And this is so familiar. It happens every time, right? We wanted to talk about the fact that we felt it was bigger than just one man, that we were all feeling vulnerable. So we put up some signs around campus saying that we were going to have a meeting to talk about the Montreal massacre. And 900 people showed up. I was asked to chair the meeting. I’d never done any public speaking or done anything like that before. And from then on I was just in this role of leadership. But I always was a writer. I was always writing for the campus newspaper, more than I was leading rallies. I’ve never been comfortable in that role.

JOAN: Is there anything good about globalization?NAOMI: Yes. There are many good things about internationalism. I consider myself an internationalist, not a nationalist. Globalization is such a slippery term and that’s why I almost never use it. I always say the so-called anti-globalization movement. And in my first book, No Logo, I talk about how we were seeing a rise in anti-corporate activism, and anti-corporate globalization activism. I never just say anti-globalization, because what was exciting about the movement that I was writing about and that I was a part of, that came to world attention in Seattle, is precisely that it was global; that these new technologies, like the Internet, were allowing us to create connections that were absolutely unprecedented between producers and consumers on other sides of the world. What we opposed was the globalization of a specific ideology. It was about an ideology that Larry Summers talks about – privatization, deregulation.

JOAN: What do you think of the branding of social justice and causes like the Red Campaign, which has become a brand? It leaves me completely cold. Do you think it’s effective? Do you think it’s a good redirection of branding and consumerism? Or do you think it’s like a false idea wrapped around a good idea?NAOMI: Every time I talk about this I get into trouble. What’s interesting about Red is it really hasn’t taken off. There was so much hype about it. And so much marketing. What was so scandalous was comparing the advertising budgets to the actual dollars that went into the Global Fund. Considering the paid and free advertising that this campaign got, I think it’s quite amazing how unsuccessful it was. And I think because a lot of people had that feeling that there was something wrong about the idea of shopping your way out a humanitarian crisis. The message of Red was: You don’t have to change anything about your lifestyle; in fact, we need to just buy more. Like, you’ve got a cell phone, but you don’t have a red cell phone! It was such a hyper-consumerist model, it didn’t resonate with the target market, which was young people, who actually do understand that this idea of limitless consumption is at the core of the problem of global inequality, not the solution.

NAOMI: And my other discomfort with not just Red, but the Make Poverty History branding, is that I really feel that it is — and was — a very real step backward from what was happening before September 11 in the global justice movement, not the anti-globalization movement, but the global justice movement that you saw not just in the protest in North America but in Porto Alegre, Brazil, with the huge World Social Forum, and the Africa Social Forum, and also the Durban World Conference against racism, the UN Conference that happened just before September 11, which was a tremendous forum for African nations and for people of African descent around the world, including in the U.S., to talk about the legacies of colonialism and slavery, to talk about real reparations, and what Africa actually deserves in terms of economic justice, not charity. And what was so exciting about these events is that Africans were actually speaking on their own behalf on the world stage and coming up with some pretty radical demands that actually challenged who owes who. They were talking about how much has been looted from that continent in terms of people and natural resources, and turning the tables on this idea of "we just want your aid, we just want your charity." And when I think back to that time, and then I look to the Gleneagles G-8 Summit and Bob Geldof and Bono talking about saving Africa, it makes my stomach churn. So that’s why I get myself into trouble when I talk about this.

JOAN: Are you too left? NAOMI: I think we’ve established that, surely! I think the question is too left for what? I mean, I’m not running for office.

JOAN: Shoshana Zuboff wrote about Wall Street’s economic crimes against humanity in BusinessWeek. Do you think these are crimes against humanity? NAOMI: "Crimes against humanity" has a very specific legal connotation, and I think that some Wall Street firms have been complicit in specific crimes against humanity. But whether the financial crisis is itself a crime against humanity, according to the UN definition, I think we should really be careful with those terms — because they need to have meaning. But I do believe that the Wall Street bailout is the greatest heist in monetary history.

JOAN: Who profits from the heist? From the Wall Street bailout?NAOMI: This is an unprecedented transfer of public wealth into private hands. And it has been done on completely false pretenses. We were told that when they announced the first $700 billion it was to get the banks to start lending again. And then the banks said, "Oh, actually we’re just going to keep it because it makes us comfortable." It’s theft. And it’s not mysterious who profits from it.

Who profits from it is exactly who seems to be profiting from it. Who will pay for it are the most vulnerable people in the world. And that’s why, maybe, I wouldn’t call it a crime against humanity. I think it is, honestly, a class war. I think we are seeing a class war, before our eyes, of the wealthiest segment of the population saving themselves and having the most vulnerable, poorest people pay the price – because that’s what it really means to bankrupt the government to save the banks. It means you’re not going to have money for food stamps. You’re already hearing these tragic stories of scholarship programs being cut. I mean, the most vulnerable people are paying for the banks to save themselves from a crisis that they created, and that is so deeply immoral. People should be angry about it, and the anger should be directed where it belongs.

JOAN: One more question, Naomi. You suggested in The Nation a boycott of Israel to end the increasingly bloody occupation. Can you expand on that? You must have caused a shit storm by saying that.NAOMI: I was actually much more surprised by the amount of support I got for that. Every time you write about Israel you get angry letters. But what surprised me was the number of supportive letters I got, including from Jewish Israelis. I think it was about people’s sense of rage and feelings of helplessness during the Israeli attack on Gaza, a sense that the old ways of putting pressure behind the scenes, lobbying and hoping for the best, and signing a petition weren’t working. I got so many letters from Israelis who had always opposed the idea of sanctions against the Israeli government saying, "Progressives in Israel are beside themselves, and the country is moving hard right on its own." You have overt racism against Arabs becoming acceptable in public discourse in Israel.

And progressives are ready to try some new tactics because they’re losing this battle. Right now the Israeli government has a sense that no matter what they do in the occupied territories, they’re still going to receive financial support from the West, they’re still going to be able to increase trade with the West. And they’ve had one of the fastest-growing economies of the past decade. A boycott does put pressure on the business community in Israel and on the broader population to put pressure on their own government. That’s what happened in South Africa. Apartheid ended when South African businesses finally had had enough of the boycott, and they turned to de Klerk and said, "This isn’t working for us. We need to negotiate." And it wasn’t because they opposed Apartheid on principle. It was because it was no longer profitable.

JOAN: I’m reading William Gibson’s Pattern Recognition. Have you read William Gibson? I think that this book is so profoundly influenced by No Logo.NAOMI: But not enough people have read Pattern Recognition, so they don’t know what we’re talking about. The incredible main character in Pattern Recognition is allergic to logos.

JOAN: Particularly Mickey Mouse and the Michelin Man. NAOMI: William Gibson didn’t read No Logo that I know of. He just saw the title in the bookstore and that’s where he came up with the idea of a main character who had an allergy to brands. I interviewed him at a literary festival when the book first came out and we talked about this.

JOAN: And he’s the person who brought your thinking into literature, into fiction, in an extraordinary way. And it shows me that the arts can be influenced by political thinking, new political thinking. NAOMI: Everyone should read Pattern Recognition. It’s brilliant There’s another book that I think did a great job of looking at branding and I don’t think enough people have read it. It’s called Jennifer Government.

JOAN: Jennifer Government? NAOMI: Yes. By Max Barry. He’s a young Australian writer and it’s a sort of sci-fi thriller set in the near future, where everyone has to take the last names of the corporation they work for. John Nike, things like that, unless you work for the government, in which case your last name is "Government." So that main character is Jennifer Government. It’s really great. Apparently it was optioned by George Clooney’s company, so I’m hoping it will be made into a film.

JOAN: What are the three things that you see that are the real solid rays of hope now?NAOMI: I talked about some of them. One of the most interesting meetings I had in recent months was with the workers from the Republic Windows & Doors factory in Chicago, who occupied their factory in December. They were so smart. They had been fired without notice. And it turned out that this had happened because Bank of America had cut off credit to the factory — Bank of America who’d gotten all these bailout funds. They were so smart, the workers and their union, UE, because they went after Bank of America instead of just the owners of the factory. And they turned it into a story about the bailout. All great struggles have to involve storytelling. I thought that was a fantastic example. I’ve been hearing about a lot more cases of these kinds of workplace occupations.

JOAN: Like in Argentina.NAOMI: This is what I made a documentary about a few years back with my husband. Factories were being closed down in the midst of the economic crisis. There were 200 of them where the workers turned them into democratically run co-ops. This is starting to happen in the economic crisis around the world. I’ve got a little file going of this and one thing that would give me a lot of hope is if we really started talking about this alternative in terms of the newspaper industry.

JOAN: I was just thinking that, and magazines. NAOMI: We are facing a crisis in journalism and we’ve been talking about impunity, and I’ll tell that when you’ve already got a culture of impunity, the very worst thing that could happen is to lose all of the newspapers. But, you know, this crisis is twofold. The crisis that the industry is facing is a crisis of their corporate control, because many of these newspapers are profitable, they’re just not profitable enough for their owners. Having spent a lot of time in factories that are trying to turn themselves into co-ops and other workplaces, I can tell you that there are some workplaces that are harder to turn into co-ops than others. But having worked at newspapers and worked at magazines, it’s actually a pretty straightforward industry to run, and journalists are pretty good at running it. And once you take out the need to have huge profits, or really profits at all, and when the goal becomes the creation and protection of jobs, but also the providing of a much-needed service, a service that is crucial to democracy, then it actually becomes economically viable. You don’t have to pay the huge bonuses. This is an example of something where you can solve two problems at once because not only could you save newspapers, but I think you’d have better newspapers if newspapers were run by journalists again.

JOAN: But what about the fact that the advertising then vanishes because of the market?NAOMI: This is why it’s become less profitable. But a lot of the newspapers could still run if their goal wasn’t to make a profit, but the goal was to put out a good newspaper and provide jobs. Because you know what? That’s enough.

JOAN: But there has to be money to run the thing and to pay everyone.NAOMI: I don’t believe that the model has completely failed. There is still some ad revenue. People are still willing to buy newspapers, they’re just not willing to buy them in the same numbers and buy the number of ads that satisfy shareholders. Another ray of hope is looking forward to the Copenhagen summit on climate change. This is the next big climate summit to come up with what they call the post-Kyoto consensus. And at this point, I think there’s a lot of rightful cynicism about the Kyoto protocol because the whole question of "How are we going to respond to climate change?" was entirely infected by market fundamentalism. Bringing it back full circle to where we started, the ideas that have dominated for the past 30 years have utterly shaped the environmental debate during the Kyoto era. So the idea was to always find "market-based solutions" to climate change, which meant that we couldn’t really legislate, and everything had to be creating market incentives for the private sector to solve the problem for us. And I think that’s a much harder sell today in the context of people rightfully losing faith in the ability of the market to solve our most pressing problems. So I think you’re going to see a lot of very different, non-market-based solutions being proposed ahead of the Copenhagen Summit, which is in December 2009.

JOAN: What’s an example of a non-market solution?NAOMI: A non-market solution is this idea that I’ve become really interested in. It’s been kicking around academic circles for a while but for the first time it’s being applied, which is the idea of "ecological debt" or "climate debt." I’ll give you a concrete example. Where this issue is most alive is in Ecuador right now. Ecuador is an enormously resource-rich country, as we know. They have very large oil reserves. But they also have a very, very active environmental movement and a very, very strong indigenous movement, particularly — though not exclusively — in the Amazon. This is one of the most biodiverse parts of the world, quite pristine wilderness. But there’s a lot of oil under the ground, and there’s a huge push to take the oil out of the area I’m talking about, which is called the Yasuni National Park. And there’s a battle that’s been going on, which is really about the limits of growth-based economics. It’s not just about the Right, because in Ecuador there’s a left-wing president, part of what they call the Pink Tide in Latin America. His name is Rafael Correa and he calls himself a socialist. He was originally in favor of extracting the oil and reinvesting the profits in health care and education. He doesn’t want the profits to just fly out of the country, as they have so often in the past. He was going to negotiate a really good deal with the oil company, unlike his predecessors. That was his vision. What’s interesting is that he has come up against tremendous resistance from indigenous groups and from environmentalists in Ecuador saying, "That’s not good enough." Their slogan is "Leave It in the Ground." They don’t want the oil being extracted. But then you have this problem: Ecuador needs money for health care and education and has been held back by regressive economic policies.

So what’s the solution? They’ve come up with this idea of ecological debt, which basically argues that the rich world, the industrialized world that has created the problem of climate change, knowing full well the science that has been in for a long time, owes an ecological debt to developing countries like Ecuador. What they’re saying is they’re owed an ecological debt because they are living through climate changes, and this is an Andean nation that is already dealing with water scarcity and many of the issues associated with global warming. And so they are proposing to the world, and Rafael Correa has signed on to this idea in theory, that there should be some sort of global fund where we in the rich world are paying them to leave it in the ground and reduce their emissions, particularly because this is a world heritage site and we all need the Amazon. Developing countries shouldn’t have to choose between having money for health care and education and reducing emissions. So it’s a completely different logic. Once again, as with reparations for slavery and colonialism, it turns the world on its head and asks this fundamental question of "who owes who?" — who’s the real debtor and who’s the real creditor?

I think these are the ideas that are going to take off in the next 20 years. And I’ll tell you something. I’ve been thinking about this idea and it definitely ties in with who I’m talking to, because I wrote it down: Who Owes Who. The acronym is W.O.W. It’s a pretty great name for a movement challenging the underlying causes of global inequality. The WOW project, that’s what we need.

"Anonymous @ 11:43 Thank you for that article "Scientists see this flu strain as relatively mild". Really puts things into perspective."

Does it now?

The reality is that flu strains behave in unpredictable ways. If ever you seek proof of chaos theory in the real world, look there.

I know Guan Yi from following and writing about the H5N1 issue, which is now dormant. He says today:

"If it goes to Egypt, Indonesia, these H5N1 endemic regions, it could turn into a very powerful H5N1 that is very transmissible among people. Then we will be in trouble, it will be a tragedy."

From what I understand, the Mexico/US H1N1 variant is unique in that it's the first ever swine/human/bird virus combination that's killed people. The article that says "Scientists see this flu strain as relatively mild" claims that mathematics indicate the virus is not all that bad. That of course is utter baloney; the only way to claim such a thing is if you forget half your math; and if you're willing to do that, or have never known it, you can prove anything, including the exact opposite.

The vaccine orders are funny too: it takes a while to create the proper vaccine for a strain, longer than they've had so far, and then it takes a lot of eggs to grow it in. Tamiflu? A wild card. Rumsfeld may stand to make a killing, but there''s little guarantee it will heave any effect.

These viruses are potentially dangerous. When and how they'll strike in impossible to predict, if only because they''re a combination of strains that may incorporate yet another strain and turn into Frankenstein.

When someone says this is not the time to panic, cordially ask him when that time will come.

When someone says this is not the time to panic, cordially ask him when that time will come.IMO this is not the time to panic about this particular strain. Flu is seasonal and this outbreak is likely to die down over the summer at least. It could easily be back in the fall and beyond, and it certainly has the potential to combine with other strains like H5N1 at some point. That could make it far worse, but it would take time. Next year COULD be 'the time to panic' on the flu front, but that is by no means a prediction. Personally I think it could take longer. We will have more than enough to cope with next year in any event IMO, like worrying where our next meal might be coming from.

You should prepare in any case to look after yourself for a period of time. This will serve you well in a number of scenarios, including both financial collapse and pandemic flu. You can never be prepared too early.

I for one regret that President Obama tries Ilargi's patience, but must deduce that too much was expected in the first place!

1 - This is uniquely the most potent crisis for the world since WWII.

2 - This president has been in Washington--a den of jackals--for about 4 months.

3 - A mundane press conference? ! I hear more fact, figures, and sincerely (if broken) expressed statements now than I can remember from any pres since Kennedy. (Yes, I am that old).

I agree he is likely mistakenly putting too much faith in his financial advisors, and too much money into an effort to maintain a failed system. But I think a little patience--given the circumstances--is in order.

NAOMI: Now you have this new level of theorizing where people think maybe Obama’s strategy is to try the free-market bailout model. You know, bailing out the banks, letting them stay private, doing this hedge-fund bailout, so that he can show that it failed, so that he can then do what he really wants to do.

JOAN: Machiavelli.NAOMI: Yeah, except for one problem: There’s not going to be any money left for the second stage of this supposedly ingenious plan.

-------------------------

I'm delighted that my speculations are penetrating so far... :-)

But- Naomi's last statement: there won't be any money left- does not hold water.

There wasn't ever- ever- going to be any money left, regardless of the path to the bottom. It's merely a matter of which collective delusions are still current, when we all hit.

Expectations are indeed the problem, across the board. Unfortunately Mr Obama is deliberately fostering high expectations but will not be able to deliver, not because of any personal failing of his, but because no one could do so. High expectations are very dangerous under these circumstances.

My own personal take on the New Flu (please? so much less distracting/misleading than "swine") lies in between Ilargi's and Stoneleighs.

Ilargi is quite right about most of his points- although the "chaotic" behavior is not quite right.

Some of what to expect is quite predictable. For instance: the New Flu is susceptible to both available anti-virals; Tamiflu and the other one.

That will change- fairly rapidly; my guess is by year's end, all New Flu cases being examined will be resistant to both. Check my prediction, please.

Because- it's in the US - all of last year's common flus were quite resistant to both. As soon as a little mixing occurs- the newly recombined resistant New Flus will have a huge selective advantage.

Virulence- yes, is pretty unpredictable.

And while I'm not panicking; I'm a bit more concerned than Stoneleigh. For one thing- it's clear to me that both mainstream media and even government reporting services (CDC) are running well behind the actual movement of the disease- underestimating, underreporting. For example- in Minnesota, our Governor announced we have a confirmed case of New Flu- but that's not included in any of the other "Track the flu" reports out there, yet; and the information has been available for 12 hours.

The potential for exponential spread is pretty damn good- leading not so much to mortality- as to widespread panic and economic damage; fast.

I've actually begun to speculate that it might be the smartest thing to do- to go out and catch it. Before it mutates to a real killer. That will occur to others, soon-

The potential for exponential spread is pretty damn good- leading not so much to mortality- as to widespread panic and economic damage; fast.

I agree. The disease itself is not my primary concern, but the panic it could engender is another story. Herding behaviour such as mass panics will make everything far worse than it need have been, partly through economic effects and partly through the potential for abusive political responses (ie a power grab under the guise of health legislation).

I've actually begun to speculate that it might be the smartest thing to do- to go out and catch it. Before it mutates to a real killer. That will occur to others, soon-

I've said much the same thing in various places online. Right now this illness is mild. It does not seem to precipitate a cytokine storm. Later versions are far more likely to present a serious threat, and those who caught it in the first wave would be the lucky ones as they would be immune (assuming this strain does become a pandemic strain at a later date).

Even those who became quite sick this time would have plenty of access to medical care, relative to those who got sick later. If we do see a real pandemic, there will not be enough ventilators in hospitals to save everyone with fluid in the lungs due to an immune system over-reaction. The ranks of the medical staff will also be reduced, both through illness and through fear of bringing a deadly disease home to their own families.

I wouldn't count on Tamiflu, but some asthma meds might help, as they are designed to reduce an immune system over-reaction in the lungs. I am not a doctor, but I do have an asthmatic child and have spent quite some time looking into asthma meds in order to understand his condition.

Fortunately he's growing out of it, but he used to have to take inhaled preventors (sodium chromoglycate if memory serves) through a nebulizer 4 times a day for years. That medication stabilizes mucous membranes. Inhaled steroids, which target and reduce inflammation, would be a better bet, but would have to be started early as they take time to have an effect.

Asthamtics could be particularly susceptible to pandemic flu as their immune system already tends to be over-reactive. Others who have had a tendency to secondary lung infections could be similarly badly affected. I would say great care should be taken to prevent either group from contracting the disease, even in its mild form.

Greenpa, WHO agrees with you that "swine flu" is a bad name - they are going to call it "influenza A (H1N1)". A columnist at Financial Times says he thinks it will end up as the "Mexican flu."

And speaking of "new", the following is not new, exactly, but it is "improved" - my "as simple as possible, but not simpler" summary of what the layperson should do.

_______________________

As President Obama said in his press conference, if you cough or sneeze, do it into your elbow, not into the open air or your hand. Wash or sanitize (with Purell or equivalent) your hands frequently. Stay home from work or school or crowds or traveling in mass transit if you're sick.

Other things you could do now:

Accumulate food and water at home in case supplies are interrupted.

While antivirals and antibiotics require prescriptions, CDC says over-the-counter cold and flu medications will give symptomatic relief. Don't give them to children under the age of two; and don't give aspirin-containing drugs to teenagers or younger. You might check that you have some of these on hand, just in case.

Aches and fever can be helped with acetaminophen (Tylenol®), ibuprofen (Advil®, Motrin®, Nuprin®), and naproxen (Aleve).

Download and print out the Centers for Disease Control and Prevention's home care advice. Just as the stores might be empty if this hits hard, the hospitals will definitely be full.

www.cdc.gov/swineflu/guidance_homecare.htm

And finally, here's a doctor's advice about dealing with being sick without help - based on going through it herself:

The following is the best explanation I've read on the "Mexican flu" (not swine, please; poor pigs...). I received the text this morning from a microbiologist who uses herbs and natural methods for healing.

"THE SWINE - H1N1 FLU - CYTOKINE STORMThis flu is different than other flus. You must pay attention here! CDC officials detected a virus with a unique combination of genesegments that have not been seen in people or pigs before. The bugcontains human virus, avian virus from North America and pig virusesfrom North America, Europe and Asia.

Deaths from the Mexican influenza epidemic have the cytokine stormpattern of young, healthy adults. Inflammatory cytokines can beblocked by anti-inflammatory foods. The swine flu epidemic centeredin Mexico City appears to be a modern replay of the Spanish influenzaepidemic of 1918-19. Infants and elderly were spared. It was theyoung adults with robust immune systems that were the prime victimsand the disease took them literally by storm.

Cytokine Storm -- Immune System out of ControlThe Spanish flu killed by producing a virulent immune response withproduction of large amounts of the immune system hormones, theinflammatory cytokines IL-1, IL-6 and TNF. These are the cytokinesassociated with the symptoms of infection, fever, fluidretention/swelling, malaise, headache, etc. These are theinflammatory symptoms that normally transition into recovery, but inthe case of swine flu, additional cytokines are produced, includinganti-inflammatory IL-10. The problem appears to be that the suddenIL-10 signaling disrupts the natural transition from inflammation torecovery and the inflammatory signaling becomes acute andlife-threatening.

Acute Inflammation Kills by Fluid in LungsThe swine flu epidemics in Spain and once again in Mexico kill byimmunological inflammation that causes fluid to accumulate in lungs,i.e. acute respiratory distress syndrome (ARDS) triggered by acytokine storm.

This type of organ failure is similar to the consequences ofsystemic infection, septicemia. These severe infections initiate anacute inflammatory response that may be very dangerous, but in manyways their similarity to swine flu symptoms may be fortuitous.Treatment for cytokine mediated multiple organ failure may providesome possible approaches to the treatment of swine flu."

To my knowledge, there have not yet been cases involving a cytokine storm outside of Mexico (with one exception involving a Mexican child visiting the US). Cases elsewhere have been mild, generally not involving hospitalization. I have no idea why Mexicans should be affected more severely, and this is something to watch.

The subversion of the immune system to drown the victim internally is indeed the problem with pandemic flu strains. As you quote, they affect young adults particularly badly.

I've seen 'starting a war' posted here as the end game diversion for the Sheeple Herd rage once it dawns on them how badly they've been screwed, but pandemics probably offer far more cover to the bad guys trying to skip town with the loot.

The Anthrax incidence provides ample example as to how disease can be used for 'behavior modification' and generally paralyzing the herd with pure raw naked Fear. Cape Fear fear.

War is much more complex and expensive to use as a 'herding behavior tool'.

Diseases, they can be facilitated and manipulated in ways warmongers can only dream of.

I agree that Tamiflu will probably not be an effective treatment. Additionally, its side-effects are seldom taken into account.

I prefer treating illnesses naturally with herbs, vitamins/minerals, and homeopathic remedies. Homeopathy was very effective in treating the 1918 Spanish flu.

IMO, one's daily diet is very important, along with exercise and maintaining proper weight. As a safeguard, if one is not doing so already, one should consume a wholesome organic diet to fortify the immune system and detox organs.

I read of a 16-year-old at the Catholic school in Queens, NY, who was hospitalized because she could not breathe. After five days of high fever, she began to improve. I don't know if she needed a ventilator. She was quoted as saying that she had a horrible pain in her throat and could hardly swallow.

http://www.guardian.co.uk/world/feedarticle/8479298"About 1,500 students replied to surveys sent out by the health department about the outbreak, helping the city get a better sense of how the virus is spreading. Some students have complained of sudden nausea; others dealt with high fever, sore throats, coughs and aches.

Rachel Mele and her mother, Linda, were relieved when the 16-year-old's fever broke Tuesday for the first time in five days. It had been hovering around 101.

The family could finally breathe easy â€” a relief after a terrifying night Thursday in which Mele's parents bundled her into the car and rushed her to the hospital when they realized she was having trouble breathing.

"I could barely even catch my breath. I've never felt a pain like that before," Mele said. "My throat, it was burning, like, it was the worst burning sensation I ever got before. I couldn't even swallow. I couldn't even let up air. I could barely breathe through my mouth."

The truth is that people were dying of something quite different since weeks ago. Had there not been broad problems within the extended families which are Mexico, people probably would never have freaked out as they have here on the report of swine flu from TPTB.

From this article (http://news.bbc.co.uk/2/hi/talking_point/8018428.stm):

"I'm a specialist doctor in respiratory diseases and intensive care at the Mexican National Institute of Health. There is a severe emergency over the swine flu here. More and more patients are being admitted to the intensive care unit. Despite the heroic efforts of all staff (doctors, nurses, specialists, etc) patients continue to inevitably die. The truth is that anti-viral treatments and vaccines are not expected to have any effect, even at high doses. It is a great fear among the staff. The infection risk is very high among the doctors and health staff.

"There is a sense of chaos in the other hospitals and we do not know what to do. Staff are starting to leave and many are opting to retire or apply for holidays. The truth is that mortality is even higher than what is being reported by the authorities, at least in the hospital where I work it. It is killing three to four patients daily, and it has been going on for more than three weeks. It is a shame and there is great fear here. Increasingly younger patients aged 20 to 30 years are dying before our helpless eyes and there is great sadness among health professionals here.Antonio Chavez, Mexico City"

and: "I work as a resident doctor in one of the biggest hospitals in Mexico City and sadly, the situation is far from "under control". As a doctor, I realise that the media does not report the truth. Authorities distributed vaccines among all the medical personnel with no results, because two of my partners who worked in this hospital (interns) were killed by this new virus in less than six days even though they were vaccinated as all of us were. The official number of deaths is 20, nevertheless, the true number of victims are more than 200. I understand that we must avoid to panic, but telling the truth it might be better now to prevent and avoid more deaths.Yeny Gregorio Dávila, Mexico City"

Our neighbors do business in Mexico City. Their beautiful, healthy little puppy went with them, and suddenly dropped dead of respiratory failure last Saturday, which cinches for me the suspicion that this is not human-to-human transmission.

The reason I'm even posting is that three times we've had the lung shutdown problem which is really what's freaking people out. You wake up in the middle of the night with an uncontrollable cough, an itch in the epiglottal area, and can't get your breath. Both my husband and I had this happen some five weeks ago. As with the times before and one time since, we sprayed our throats with a mixture of 12 oz water and about 30 drops of grapefruit seed extract (GSE) concentrate ( http://www.nutriteam.com/gsewhat.html ), and were entirely over it within the hour.

A young Mexican lady we know who was born with a common congenital disfiguration of hands and feet was close to dying of bronchial problems, her throat so sore she couldn't talk. She had tried courses of every antibiotic around. She said it started out as ours had, with the uncontrollable coughing which forbids sleep. I gave her a spray mister of diluted GSE, which she immediately employed every time she had the cough urge. By noon the next day she was entirely over the sickness that the antibiotics could not cure. Stranger still, and something for which I have no explanation, she said the constant pain in her joints (particularly in the disfigured limbs) had entirely ceased. She has had no bronchial problems since.

She presented almost exactly the way people are describing when people die of whatever it is.

I urge everyone to lay hold of this product. Be sure you do not get it into your eyes.

I can't tell you how glad I was, after literally feeling my lungs shut down, to have had this product liberate my respiratory system. I can't guarantee that we and our friend had exactly what is killing people, but it is worthwhile to have your own stock.

PS - the sensation we experienced was quite unlike any other flu or cold experience. It feels like something tiny has attached to the epiglottis and you can not stop coughing or find relief.

If you experience either that or a sense of your lungs almost shutting down for filling up with fluid, which we have, you may have to heavily spray the back of your throat for some 30 minutes or more if it's a bad case. Do it very frequently for an hour, and you should have relief. Adjust the nozzle to a very fine mist and try to breathe it into your lungs (keeping it out of your eyes).

May none of you ever have this happen. It is very frightening. It still is miraculous to me that I went through this and experienced such an extreme change, totally overcoming the problem so quickly.

As for the flu, I have been putting a good deal of Time into researching this.

Its NOT Swine human bird.

ITS SWINE SWINE and its never been seen before. No natural immunity.

There is a good thread over at Ticker Forum. I posted an article earlier about this SWINE SWINE thing.

Then later today another Researcher interview from Argentina said the exact same thing. SWINE SWINE never seen. When asked about why the reports keep saying swine, avian, human. Well his answer seemed a bit technical and I need to dig into what he was saying or "trying not to say".

If you start with todays posts at TF and read from around page 157 to present you should get some interesting articles that prove this.

It was in a Wired.com article last night where I discovered the Swine Swine connection last evening.

http://www.wired.com/wiredscience/2009/04/swinefluupdate/

This virus also seems to have a long incubation time. And from reading a doctors blog from Mexico, he also said that he was seeing 5 -9 days. New info from the "experts" now say that 7 days is common from in contact with a person with symptoms to onset of symptoms is seven days. Well that seems to be the average of What the Mexican doc said. Sorry no link. Took it from a cut and paste yesterday morning from another site. Didn't know if it was dependable info. Seems it is perhaps. The doc also said the count of deaths and the number of cases reported in Mexico was way below the real number.

Now cities in Texas are starting to cancel events like Mayfest I hear.

Oh, and yes the best info on the economic crisis is here, and I read everyday still. Just have nothing to say,

A well-functioning immune system (having been fortified PRIOR to acquiring the Mexican flu) probably would have a less severe or more "balanced" inflamatory response to the "Mexican influenza", IMO. However, after acquiring the flu, avoid trying to fortify the immune system with certain herbs like echinacea because the inflammatory response could increase. Other anti-viral herbs, such as olive leaf extract, are okay to use.

I think one should avoid catching the Mexican flu, even in its supposedly milder form. It is very difficult to predict how one's body would react to such a genetically diversified influenza.

@ Adios a Babilonia,

Hi!

Good to hear from you!

Yes, GSE (Grapefruit Seed Extract) is a great anti-viral, anti-fungal, and anti-bacteria product. I gargle with it (4 oz. water and 4 drops of GSE) whenever I feel I'm catching something. I also put about 20 drops in 32 oz. of Dr. Bronner's soap, which I keep on the bathroom sink for washing hands.

Ilargi Re: Swine Flu: I've already, pretty much, resigned myself that I will probably be unable to travel where I want to go this summer. The time frame of planning required is just not going to be there to either have a safe situation or be able to have a situation which will not cause other problems in areas or events I would otherwise attend.

This flu is serious stuff -- when you have to close the entire Fort Worth School District for an entire week-plus, all it's really going to take is this stuff taking hold and -- look out!

This stuff has already been in play in various areas for a month and a half now.

Stoneleigh: By next year, there will be no further facade: We'll be a third-world country, just like Mexico. Probably in the same manner too -- outside of the tourist traps...

Greenpa: This whole country has been basically run on the sole basis of paying people (in one form or another of "payment") not to riot. That's going away, very quickly. Chrysler's Ch. 11 filing is a very important step between TEOTWAWKI and TSHTF.

As far as the New Flu goes, I fully expect severe travel restrictions and quarantines to become necessary rather soon, once it's clear how little we _can_ control this...

adios a babalonia: Truth = Riot. They're going to continue to lie until they can lie no more -- when it truly becomes "too late". That's why I am convinced this is far more serious than anyone is letting on, for the basis of keeping people from the truth so they don't (rightly) panic.

I am hesitant to post this, on this blog, because I really enjoy reading this blog, makes tons of sense here, but here goes:

Obama is the result of the education that has been administered in recent decades.

I am not disappointed in Obama, or surprised by him. What I see now is exactly what I saw on the Democratic Convention stage four and a half years ago.

A constitutional republic is a well designed system, meant to protect the honest (for lack of a better word) citizen from 1. a criminal government and 2. appropriately educated masses. But when the criminal government got control of the education system, we got the masses and Obama, all well trained.

I think Stoneleigh is probably right, there seems to ulterior motives for the media hype. A power grab to take away more personal freedom, maybe? I think it may have more to do with an economic motive - but, that pure speculation on my part.

Of course, in nature, when a population of any animal become too great - diseases emerge like rabies, parvo, distemper. Maybe this is Mother Nature's Smackdown.

I find myself wondering if any of you have visited someone in a hospital lately. The "doctors" never wash their hands, and they walk around with their stethescopes around their necks like awards for having finished med school. The stethescopes are never disinfected between patients let alone sterilized. They touch patient after patient with these instruments, presumably transferring quadrillions of bacteria nonchalantly each time. I am retired from the practice of dentistry, but I know that if I had ever been that negligent, I would probably have wound up in jail.

My point is that human beings are quite resilient, especially healthy ones. Those who are already in poor health may, indeed, succumb to this new strain of the flu (and/or the more seasoned ones as well) but their infirmity or death will have less to do with the virus than the existing state of their health at the time of infection.

If the death of your fellow citizen is a concern to you, perhaps their health should also be of concern. If ever there was a teachable moment regarding universal health care (notice I didn't say insurance), this should be it.

I still find it hilarious that folks say we should give Obama more time, because he's only been President for a few months.

These people clearly never knew that he was a Senator before taking the White House, and they have no knowledge of his activities before January 20th.

For them, Obama sprang forth, fresh from the dew and clover, fully formed with no history to examine.

As Senator, he betrayed our nation over and over again. He betrayed the Democratic Party and it's constituents. He betrayed the American People.

As Senator, he voted for torture, for more war, for illegal wiretapping and for the bailouts.

Now, I'll give him credit for his first year as Senator. He actually stood his ground and voted against these things. Then late one night a lobbyist flew into his window on leathery wings. Sucked the life out of him and turned him to the dark side.

Obama has shown us for more than a year that he's not interested in upholding America's ideals or laws.

He's a con man. He's fooled a lot fools.

If you still think he needs more time, let me know by emailing me your username, password, social security number, mother's maiden name and other pertinent information that is needed to access your financial accounts. I promise not to abuse the privilege of keeping this information safe for you.

You can trust me. So long as you pay no attention to what I do. I promise to be as honest as Obama.

Of course, when folks write that we have X years of supply, based on current consumption, we shouldn't assume that this is how long that supply will last.

We never stay in a steady state in consumption. If our industry is going to grow, then our consumption must grow.

That supply horizon then moves dramatically closer, due to the magic of exponential growth in depletion.

Still, that discovery, could lead to new discoveries all over the world. We could experience one more industrial bubble before it's lights out. If so, then we can experience the final downturn with more people and environment that is further degraded.

If we can blow another short term industrial bubble, then we will be able to eliminate even more of the life on our planet before we finally go down.

Chrysler was saved so that confidence would not be hurt. Certainly stocks and confidence are rising because the government and the Fed are working to restore confidence. Abbey Cohen is confident the S&P will rise to 1050.

See how easy the confidence game is.

I don't know if it should all be seen through the lens of epistemology or metaphysics or some other branch of philosophy. No doubt money today is a complex abstraction. More than ever a matter of belief. Can we believe ourselves out of the every growing debt load? Stay tuned.